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Avery  Architectural  and  Fine  Arts  Library 
Gift  of  Seymour  B.  Durst  Old  York  Library 


i 


E.  H.  HARRIMAN 

A  Biography 

IN  TWO  VOLUMES 

VOLUME  I 


Digitized  by  the  Internet  Archive 
in  2013 


http://archive.org/details/ehharrimanbiogra01kenn_0 


E.  H.  HARRIMAN 

A  Biograjihi/ 

BY 
GEORGE  KENNAN 

VOLUME  I 


BOSTON  AND  NEW  YORK 

HOUGHTON  MIFFLIN  COMPANY 


COPYRIGHT,  1922,  BY  GEORGE  KENNAN 
ALL  RIGHTS  RESERVED 


CAMBRIDGE  .  MASSACHUSETTS 
PRINTED  IN  THE  U.S.A. 


To  the  Memory  of 

E.  H.  HARRIMAN 

*' whose  services  to  the  science  of  railroading  will 
hardly  be  reckoned,  by  those  who  know  what  his 
work  was,  as  less  than  those  rendered  by  George 
Stephenson  himself  " 


PREFACE 

IN  writing  this  biography  of  E.  H.  Harriman  I 
found  it  practically  impossible  to  describe  his 
many  and  varied  activities  in  chronological  se- 
quence, year  by  year,  as  one  might  do  in  the  case  of  a 
man  who  worked  only  in  a  single  field  and  took  up 
only  one  thing  at  a  time.  In  every  year  after  1899 
he  was  carrying  on  at  least  two  or  three,  and  some- 
times half  a  dozen,  important  enterprises  simul- 
taneously; and  to  narrate  events  by  years  would 
render  it  necessary  to  put  into  every  year  a  scrap,  or 
fragment,  of  everything  that  he  was  doing  that  year, 
and  thus  make  the  biography  a  series  of  superim- 
posed literary  sandwiches,  each  made  up  of  a  slice  of 
the  Boys'  Club,  a  slice  of  the  Union  Pacific,  a  slice  of 
the  Southern  Pacific,  etc.  This  would  break  up 
three  or  four  continuing  enterprises  into  eight  or  ten 
intermixed  installments,  and  tend  not  only  to  con- 
fuse the  reader,  but  to  deprive  each  achievement  of 
the  interest  that  it  might  have  if  treated  separately 
as  a  whole. 

I  have  also  found  it  necessary  to  devote  what  may 
seem  to  be  a  disproportionate  amount  of  space  to  the 


viii  PREFACE 

details  of  certain  transactions  which,  during  Mr. 
Harriman's  life,  were  widely  misrepresented  or  mis- 
understood. In  some  cases  these  transactions  were 
relatively  unimportant;  but  inaccurate  accounts  of 
them  were  made  the  basis  for  unwarranted  asper- 
sions and  attacks  which,  at  the  time,  were  allowed  to 
go  unanswered  and  which  have  never  since  been 
adequately  dealt  with.  Mr.  Harriman  was  tempera- 
mentally disinclined  to  engage  in  personal  disputes 
and  controversies.  He  did  not  like  the  newspaper 
notoriety  that  accompanies  quarrels  carried  on  pub- 
licly, and  he  often  refrained  from  making  replies  to 
injurious  charges,  even  when  he  had  a  perfect  and 
convincing  defense.  Then,  too,  he  regarded  public 
controversy  as  a  waste  of  time.  The  work  in  which 
he  happened  at  the  moment  to  be  engaged  seemed  to 
him  more  important  than  anything  else,  and  he 
would  not  allow  himself  to  be  diverted  from  it  by 
harsh  criticism  of  his  methods,  or  even  by  unjusti- 
fied attacks  upon  his  character  and  personal  integ- 
rity. He  always  thought,  as  Abraham  Lincoln  once 
said,  that  ''a  man  has  not  time  enough  to  spend  half 
his  life  in  quarrels.'*  This  unwillingness  to  engage  in 
controversies,  however,  was  often  misinterpreted. 
Some  people,  who  did  not  know  him  personally, 
thought  that  it  indicated  callous  indifference  to  pub- 
lic opinion,  while  others  regarded  it  as  evidence  that 


PREFACE  ix 

no  convincing  reply  to  damaging  accusations  could 
be  made.  Neither  of  these  suppositions,  however, 
had  any  foundation  in  fact.  Mr.  Harriman  was  not 
indifferent  to  public  opinion,  nor  did  he  ignore  at- 
tacks because  he  was  unable  to  meet  them.  He  sim- 
ply did  not  care  to  spend  in  controversy  time  that  he 
could  employ  more  profitably  in  work.  When  an  in- 
timate friend  once  said  to  him  that  he  certainly 
would  be  misjudged  if  he  did  not  defend  himself 
with  the  weapons  that  lay  at  his  hand,  he  replied: 
*'The  people  always  find  out  what's  what,  in  the 
end,  and  I  can  wait.  I  need  all  my  time  and  energy 
to  do  things.'*  In  order  that  the  people  who  mis- 
judged Mr.  Harriman,  in  his  lifetime,  may  ^'find 
out  what's  what  in  the  end,"  it  seems  to  me  neces- 
sary that  they  should  be  in  possession  of  all  the  facts, 
and  I  have  therefore  given  with  considerable  fullness 
the  details  of  such  transactions  as  the  Chicago  & 
Alton  reorganization,  the  contest  for  control  of  the 
Burlington,  the  Equitable  Life  Assurance  Society 
case,  the  Interstate  Commerce  investigation,  and 
the  break  with  President  Roosevelt. 

I  desire  gratefully  to  acknowledge  the  help  given 
me  in  the  writing  of  this  biography  by  a  large  num- 
ber of  railroad  men,  bankers,  and  civil  engineers, 
who  have  not  only  read  my  manuscript  for  errors. 


X  PREFACE 

but  have  furnished  me  with  valuable  information 
concerning  affairs  in  which  they  participated,  or  of 
which  they  had  accurate,  first-hand  knowledge. 

The  quoted  matter  in  the  Dedication  is  from  an 
article  by  W.  M.  Acworth  in  the  London  Economic 
Journal  for  March,  1916. 

George  Kennan 


CONTENTS 

I.  Ancestry,  Boyhood,  and  Early  Life 
Attends  Trinity  School,  New  York  —  Becomes 
successively  messenger  boy,  '*  pad-shover,"  clerk, 
and  chief  clerk  in  office  of  D.  C.  Hays,  stock- 
broker. New  York  —  Opens  broker's  office  of  his 
own  —  First  venture  in  stock  speculation  —  In- 
terest in  horses,  boxing,  and  rifle  shooting  —  Va- 
cations in  the  Adirondacks  —  Makes  acquaint- 
ance of  Dr.  E.  L.  Trudeau 

II.  The  Boys'  Club  25 
First  Boys'  Club  in  the  world  founded  by  Harri- 
man  with  three  boys  on  the  East  Side,  New  York 

—  Average  attendance  during  first  five  years 
only  about  one  hundred  —  Incorporated  in  1887 
with  membership  of  about  five  hundred  —  Har- 
riman  puts  up  new  building  for  it  in  1901  at  cost 
of  §185,000  —  Membership  grows  to  seven  thou- 
sand —  Since  its  foundation  club  has  influenced 
lives  and  characters  of  250,000  street  boys 

III.  Entrance  into  the  Railroad  Field  59 
Becomes  director  of  Ogdensburg  &  Lake  Cham- 
plain  Railroad  Company  —  Marries  Mary  W. 
Averell  of  Ogdensburg,  New  York  —  Buys  Sodus 
Bay  and  Southern  Railroad,  rebuilds  it,  and  sells 

it  to  the  Pennsylvania  —  Elected  director  of  Il- 
linois Central  —  Retires  from  brokerage  business 
and  buys  Arden  Estate  in  Orange  County,  New 
York  —  Contest  with  J.  P.  Morgan  for  control  of 
Dubuque  &  Sioux  City  Railroad  Company  — 


xii  CONTENTS 

Elected  Vice-President  of  Illinois  Central  —  Con- 
gress enacts  interstate  Commerce  Law  —  Its  in- 
fluence on  Harriman's  later  career  —  Contest 
with  general  manager  of  Illinois  Central  over 
question  of  rates 

IV.  Illinois  Central  and  Erie  88 
Acquires  great  influence  in  Illinois  Central  — 
Extension   and   improvement  of   that   road  — 
Makes  thorough  study  of  practical  railroading  — 
Acquires  interest  in  the  Erie  —  Contest  with  J. 

P.  Morgan  over  reorganization  of  Erie  Company 
—  Supports  financially  Erie  Canal  Work  of  Fur- 
naceville  Iron  Company 

V.  The  Reorganization  of  the  Union  Pacific     109 

Causes  which  brought  about  the  insolvency  of 
that  company  —  Attempts  at  reorganization  — 
Harriman  determines  to  get  control  of  the  road 
and  opposes  plan  of  reorganization  committee  — 
Finally  agrees  to  cooperate  if  given  position  on 
Executive  Committee  —  Elected  Director  of  re- 
organized company  in  December  and  chairman 
of  the  Executive  Committee  in  May 

VI.  Reconstruction  and  Reequipment  of  the 
Union  Pacific  139 
Harriman  makes  trip  of  inspection  over  Union 
Pacific  System  —  Bad  condition  of  road  and  of 
country  tributary  to  it  —  Asks  appropriation  of 
$25,000,000  for  betterments  —  His  plans  for  re- 
construction and  reequipment  of  road  —  Colos- 
sal engineering  difficulties  —  Work  of  reducing 
grades,  eliminating  curves,  and  reballasting  — 
The  Aspen  Tunnel  —  Abandonment  of  one  hun- 
dred and  fifty  miles  of  old  line  and  reconstruction 


CONTENTS  xiii 

on  new  route  —  Reacquirement  of  Oregon  Short 
Line  and  Oregon  Railroad  &  Navigation  Com- 
pany lost  at  time  of  bankruptcy  —  Financial  re- 
sults of  Harriman's  work  —  Great  increase  in 
traffic  and  earnings  —  Enhancement  in  values  of 
farm  lands  and  products  —  Enormous  increase 
in  service  rendered  to  public  —  Reduction  of 
rates 

VII.  The  Expedition  to  Alaska  185 
Charter  of  steamer  George  W.  Elder  —  Harri- 
man  invites  twenty-five  distinguished  scientists 

to  accompany  him  and  pays  all  their  expenses 
from  New  York  to  Siberia  and  back  —  Depar- 
ture from  Seattle  —  Scenery,  fauna,  and  flora  of 
Alaskan  waters  —  Visit  to  Muir  Glacier  —  Side 
trip  over  ice  to  ** Howling  Valley"  —  Visit  to 
Malaspina  Glacier  —  Discovery  of  Harriman 
Fiord  —  Stop  at  Island  of  Kadiak  —  Harriman 
shoots  great  Kadiak  bear  —  Steamer  strikes  reef 
in  Bering  Sea  in  dense  fog  —  Visit  to  coast  of  Si- 
beria —  Return  to  Seattle  —  Scientific  results  of 
expedition 

VIII.  The  Kansas  City  Southern  Episode  214 
History  of  Kansas  City  Railroad  Company  — 
Harriman  acquires  control  of  road  and  partially 
rebuilds  it  —  New  Board  of  Directors  elected 
and  Harriman  retires  —  Criticisms  of  his  man- 
agement 

IX.  Acquirement  and  Reconstruction  of  the 
Southern  Pacific  232 
Harriman  buys  control  of  Southern  Pacific  — 
Objects  of  purchase  —  Reduction  of  grades  and 
eliminations  of  curves  —  Building  of  Lucin  cut- 


xiv  CONTENTS 

off  across  Great  Salt  Lake  at  cost  of  $9,000,000  — 
Abandonment  of  three  hundred  and  seventy-four 
miles  of  old  line  and  reconstruction  of  three  hun- 
dred and  twenty-two  miles  on  new  route  —  Re- 
builds thirty  miles  of  wooden  trestles  and  bridges, 
replacing  them  with  structures  of  concrete  or 
steel  —  Spends  $20,000,000  in  improving  road  in 
only  three  places  —  Introduces  system  of  block 
signals  —  Builds  extension  of  Southern  Pacific  to 
Mazatlan  in  Mexico  —  Spends  in  reconstruction, 
reequlpment,  and  extension  of  Southern  Pacific 
about  $242,000,000  —  Cost  of  betterments  and 
extensions  on  the  two  Pacific  Roads  $400,000,000 

X.  Railroad  Combinations  261 
Results  of  railroad  combinations  and  consolida- 
tions —  They  reduce  rates  instead  of  increasing 
them  —  Alleged  danger  of  monopoly  —  It  is  dis- 
proved by  history  of  Pennsylvania  —  Results  of 
Harriman's  management  of  Southern  Pacific  — 
Great  increase  in  traffic  and  service  to  public  — 
Economy  in  operation  through  pooling  of  cars 
and  standardization  of  equipment  —  Evils  of 
over-regulation  —  Harriman's  view  of  central- 
ized control  in  railroad  field 

XI.  Control  of  the  Burlington  286 
Reasons  for  desire  of  both  Hill  and  Harriman  to 
acquire  the  road  —  Harriman  makes  two  unsuc- 
cessful attempts  to  get  it  —  Hill  succeeds  in  mak- 
ing the  purchase  but  refuses  to  let  Harriman 
share  in  it  —  Harriman  then  tries  to  secure  con- 
trol of  Northern  Pacific  by  purchasing  $79,000,- 
000  of  its  stock 


J 


CONTENTS  XV 

XII.  Northern  Pacific  Panic  311 
Heavy  purchases  and  short  sales  of  Northern  Pa- 
cific stock  bring  on  panic  in  Wall  Street  —  Hill 
and   Morgan  compromise  with  Harriman  and 
form  Northern  Securities  Company  —  Objects 

of  this  organization  —  Government  attacks  it  in 
the  courts  on  the  ground  that  under  the  Sher- 
man Anti-Trust  Law  it  is  a  combination  in  re- 
straint of  trade  —  U.  S.  Supreme  Court  orders  its 
dissolution 

XIII.  Contests  with  Senator  Clark  AND  Keene  340 
Contest  with  Senator  Clark  over  building  of  San 
Pedro,  Los  Angeles  &  Salt  Lake  Railway  —  James 

R.  Keene  attempts  to  get  control  of  Southern 
Pacific  —  Harriman  and  Schiff  form  defensive 
pools  for  protection  of  Union  Pacific 

XIV.  Harriman  and  the  Erie  360 
Elected  a  director  of  the  Erie  Company  and  a 
member  of  its  Executive  Committee  —  Cooper- 
ates with  President  Underwood  in  financing 
betterments  —  Saves  Erie  from  great  loss  on  its 
purchase  of  Cincinnati,  Hamilton  &  Dayton 
Railroad  —  Prevents  bankruptcy  of  the  Erie 
Company  by  taking  up  $5,500,000  of  its  short- 
term  notes 

XV.  The  Contest  with  the  Santa  Ft  378 
Harriman  buys  $30,000,000  of  Santa  F6  stock 
and  elects  two  directors 

XVI.  Northern  Securities  Company  Dissolved  387 
Contest  with  Hill  over  distribution  of  its  assets 

—  U.S.  Supreme  Court  decides  in  favor  of  Hill 


XVI  CONTENTS 

—  Harriman  sells  Northern  Pacific  and  Great 
Northern  shares  at  profit  of  $58,000,000  —  In- 
vests $130,000,000  of  Union  Pacific  money  in 
stock  of  other  roads  —  Expediency  of  such  in- 
vestment questioned 

XVII.  Equitable  Life  Investigation  405 

Harriman  becomes  director  of  company  —  Presi- 
dent Alexander  and  Vice-President  Hyde  begin 
factional  quarrel  —  Harriman  suggests  com- 
mittee of  investigation  —  Frick  committee  ap- 
pointed with  Harriman  as  member  —  Commit- 
tee recommends  dismissal  of  both  Alexander  and 
Hyde  —  Both  factions  then  attack  Harriman  — 
State  Legislature  appoints  investigation  commit- 
tee with  Charles  E.  Hughes  as  counsel  —  Harri- 
man makes  statement  of  his  relations  with  com- 
pany 


E.  H.  HARRIMAN 

• 

CHAPTER  I 

ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE 

WHEN  a  man  greatly  distinguishes  himself,  in 
any  field  of  human  endeavor,  the  world  nat- 
urally asks:  "Who  were  his  ancestors?  Where  did 
his  family  line  originate  and  what  was  its  history? 
Did  he  inherit  his  ability  from  progenitors  who  had 
themselves  won  distinction  in  the  same  or  a  similar 
field?" 

The  history  of  E.  H.  Harriman's  family  in  the 
United  States  begins  with  the  arrival  in  New  York 
of  an  Englishman  named  William  Harriman  in  the 
early  summer  of  1795.^  This  ancestor  of  the  Ameri- 
can branch  of  the  family  had  been,  for  some  years,  a 
dealer  in  stationery  in  the  city  of  London.  His  busi- 
ness must  have  been  fairly  large,  as  well  as  prosper- 
ous, because  the  merchant  to  whom  he  sold  it,  when 
he  himself  started  for  America,  afterward  became 
Lord  Mayor  of  the  city.  William  Harriman  came  to 
the  United  States,  therefore,  not  because  he  had  been 

*  There  are  said  to  have  been  Harrimans  in  Massachusetts  as  early 
as  1720,  in  New  Jersey  in  1747,  and  in  New  York  in  1750;  but  their  re- 
lationship to  E.  H.  Harriman's  ancestor  has  not  been  determined. 


2  E.  H.  HARRIMAN 

unsuccessful  at  home,  but  partly  because  he  had 
been  a  warm  sympathizer  with  the  American  colo- 
nists in  their  struggle  for  independence,  and  partly 
because  he  thought  he  might  find,  in  the  newly  es- 
tablished Republic  across  the  sea,  better  opportuni- 
ties for  ability  and  enterprise  than  any  that  he  could 
reasonably  look  for  in  the  England  of  that  time. 
This  William  Harriman,  who  was  E.  H.  Harriman's 
great-grandfather,  sailed  from  Bristol  in  the  ship 
Portland  on  the  4th  of  April,  1795,  and  after  a  tedi- 
ous voyage  of  sixty  days  arrived  in  New  York  on  the 
3d  of  the  following  June.  He  went,  almost  at  once, 
to  New  Haven,  Connecticut,  which  was  then  a  grow- 
ing and  thriving  city,  almost  as  old  as  New  York. 

Most  of  the  Europeans  who  came  to  America  in 
the  last  decade  of  the  eighteenth  century  were  com- 
paratively poor;  but  from  the  fact  that  William 
Harriman  soon  became  known  to  his  New  Haven 
neighbors  as  "the  rich  Englishman,'*  it  may  fairly 
be  inferred  that  he  was  possessed  of  some  capital. 
At  any  rate,  he  had  money  enough  to  go  into  business 
on  a  rather  large  scale,  because  soon  after  his  arrival 
in  this  country  he  bought  or  chartered  a  number  of 
sailing  vessels  and  engaged  in  the  West  India  trade 
—  a  field  of  maritime  enterprise  in  which,  if  the  haz- 
ards were  sometimes  great,  the  profits  were  generally 
large. 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    3 

In  the  year  1800,  after  living  five  years  in  New 
Haven,  William  Harriman  moved  to  the  city  of  New 
York,  where  he  continued  to  carry  on  the  trade  with 
the  West  Indies,  but  added  to  it  a  general  commis- 
sion business.  Throughout  the  early  part  of  the 
nineteenth  century  he  resided  with  his  famil}^  on 
Broome  Street,  just  off  Broadway,  in  a  part  of  the 
city  where  many  old  New  Yorkers  then  had  their 
homes.  Although  he  never  acquired  great  wealth,  he 
always  lived  in  comfort  and  was  generally  prosper- 
ous up  to  the  time  of  his  death.  His  family  consisted 
of  eight  sons  and  four  daughters;  but  several  of  the 
sons  were  lost  at  sea,  and  only  Orlando,  the  grand- 
father of  E.  H.  Harriman,  lived  to  transmit  the  fam- 
ily name.  This  surviving  son  succeeded  to  his  fa- 
ther's business,  carried  it  on  successfully  for  many 
years,  and  became  a  prominent  figure  in  the  com- 
mercial life  of  New  York;  but  in  1837  he  lost  a  large 
part  of  his  property  in  the  great  fire  which  then 
swept  over  the  city.  From  this  mishap  he  never  fully 
recovered ;  but  in  later  years  he  partly  retrieved  his 
fortunes,  and  passed  the  remainder  of  his  life  in  com- 
fort, if  not  in  luxury. 

His  oldest  son,  also  named  Orlando,  was  E.  H. 
Harriman's  father.  He  entered  Columbia  University, 
distinguished  himself  as  a  student,  and  was  gradu- 
ated with  honor,  after  having  won  the  gold,  silver, 


4  E.  H.  HARRIMAN 

and  bronze  medals  in  his  classes.  Although  most  of 
his  brothers  followed  the  example  of  their  ancestors 
by  engaging  in  commercial  pursuits,  Orlando  decided 
to  enter  the  ministry,  and  in  1841,  just  four  years 
after  the  fire  which  destroyed  the  greater  part  of  his 
father's  property,  he  was  ordained  as  a  deacon  in  the 
Episcopal  Church.  Whether  he  was  qualified,  in  all 
respects,  for  the  profession  that  he  adopted,  seems  to 
be  a  matter  of  some  doubt.  He  had  been  diligent  and 
successful  as  a  student,  and  he  was  unquestionably  a 
man  of  character  and  culture;  but  he  is  remembered 
as  somewhat  cold  and  austere  in  manner,  and  it  is 
possible  that  he  lacked  the  magnetic  personal  charm 
which  might  have  given  popularity  and  success  to  a 
clergyman  of  much  less  ability.  Certain  it  is  that  he 
did  not  secure  the  advancement,  or  achieve  the  ma- 
terial success,  that  might  reasonably  have  been  ex- 
pected. He  seems,  however,  to  have  had  confidence 
in  his  own  future,  because  in  1841,  soon  after  his 
ordination  as  deacon,  he  assumed  new  responsibili- 
ties by  marrying  Miss  Cornelia  Neilson,  a  lady  to 
whom  he  had  been  for  some  time  betrothed.  Miss 
Neilson  belonged  to  an  old  and  distinguished  New 
Jersey  family.  Her  father,  who  was  related  to  the 
Stuyvesants  and  the  Bleeckers,  was  one  of  the  ablest 
and  most  successful  physicians  in  New  York,  and  her 
paternal  ancestor,  Colonel  John  Neilson,  served  on 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    5 

the  staff  of  General  George  Washington  during  the 
Revolutionary  War,  and  was  a  delegate  from  New 
Jersey  to  the  Constitutional  Convention  of  1777. 
She  was  a  woman  of  strong  and  well-balanced  char- 
acter, and  from  her,  rather  than  from  the  Reverend 
Orlando  Harriman,  Mr.  E.  H.  Harriman  seems  to 
have  inherited  his  business  ability. 

Mr.  and  Mrs.  Orlando  Harriman  were  devotedly 
attached  to  each  other,  and  the  marriage  was  a 
happy  and  successful  one;  but  the  husband  did  not 
immediately  succeed  in  securing  adequate  financial 
support,  or  in  establishing  a  permanent  home.  He 
was  still  a  deacon  when  he  married,  and  it  was  not 
until  1843  that  he  became  assistant  rector  of  Christ 
Church  in  Tarrytown,  New  York.  A  year  or  two 
later  he  moved  to  Hempstead,  Long  Island,  and  took 
charge  of  the  parish  there,  but  in  neither  place  did 
he  receive  a  salary  that  was  commensurate  with  his 
abilities.  Country  churches  at  that  time  were  com- 
paratively small  and  weak,  and  the  few  hundred 
dollars  that  they  could  afford  to  pay  their  ministers 
hardly  sufficed  for  the  support  of  a  man  with  a  grow- 
ing family.  When  Edward  Henry  Harriman  waa 
born  in  the  Episcopal  rectory  at  Hempstead,  on  the 
25th  of  Februar>^  1848,  his  father  began  to  feel  that 
the  increasing  burden  of  his  family  obligations  and 
responsibilities  was  greater  than  he  could  bear  under 


6  E.  H.  HARRIMAN 

the  conditions  then  existing.  He  had  four  young 
children  to  care  for  and  educate;  the  parish  could  not 
pay  more  than  it  was  already  paying;  and  there 
seemed  to  be  little  prospect  of  a  change  for  the  better 
without  a  change  of  location.  In  1849,  the  *'gold 
rush"  to  the  Pacific  Coast  began,  and  when,  through 
the  influence  of  friends,  the  Reverend  Orlando  Har- 
riman  received  in  1850  a  call  from  a  mountain  parish 
in  California,  he  decided  to  accept.  He  had  labored 
six  years  in  Tarry  town  and  Hempstead  without  much 
advancement  or  pecuniary  success,  and  he  doubt- 
less thought  that  in  such  a  field  as  that  presented 
by  the  Pacific  Coast  there  would  be  an  opportunity 
to  do  much  good,  and  at  the  same  time  secure  ade- 
quate compensation  for  his  work.  In  view  of  the 
uncertainties  involved  in  this  change  of  location,  it 
seemed  inexpedient  to  take  his  family  with  him,  so 
leaving  his  wife  and  children  in  Hempstead,  with  the 
intention  of  sending  or  returning  for  them  if  all 
should  go  well,  he  sailed  in  May,  1850,  for  California 
by  way  of  Panama. 

Owing  largely  to  circumstances  that  could  not 
have  been  foreseen,  this  bold  venture  of  E.  H.  Har- 
riman's  father  proved  to  be  unfortunate.  The  sani- 
tary conditions  on  the  Isthmus  at  that  time  were 
bad;  there  was  no  railway  across  it;  and  passengers 
had  to  make  their  way  from  the  Atlantic  to  the 


i 


I      1 1     I  li  liiiM 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    7 

Pacific  as  best  they  could,  in  carts,  on  mule-back,  or 
on  foot.  When  Mr.  Harriman,  after  such  a  journey, 
arrived  ''wet,  tired,  and  hungry"  in  Panama,  he  was 
taken  seriously  ill.  After  lying  there,  helpless  and 
without  much  attendance,  for  a  month  or  more,  he 
was  able  to  resume  his  journey;  but  on  the  voyage  to 
San  Francisco  he  read  the  burial  service  over  the 
bodies  of  seven  of  his  fellow  passengers  who,  less 
fortunate  than  he,  died  of  Chagres  fever. 

Upon  reaching  his  proximate  destination,  Mr. 
Harriman  was  disappointed  to  find  that  the  vestry- 
men of  the  church  to  which  he  had  been  called,  hav- 
ing heard  nothing  from  him  during  his  illness,  had 
given  him  up,  and  had  filled  the  vacancy  offered  to 
him  by  appointing  another  rector.  Left  thus  without 
a  parish,  he  wandered  about  the  State  for  nearly  a 
year,  preaching  here  and  there  in  pioneer  towns  or 
mining  camps;  founding  Episcopal  churches  in  Stock- 
ton and  Sacramento;  going  through  an  epidemic  of 
cholera  in  the  latter  place ;  and  rendering  everywhere 
such  service  as  he  could  to  the  living  and  the  dead. 
Early  the  next  year,  broken  in  health  and  disap- 
pointed in  the  hope  of  establishing  himself  in  a  place 
to  which  he  might  bring  his  family,  he  decided  to 
return  to  the  East.  Sailing  from  San  Francisco  in 
March,  he  again  crossed  the  Isthmus  of  Panama  — 
this  time  without  mishap  —  and  reached  New  York 


8  E.  H.  HARRIMAN 

on  the  1 8th  of  April,  1851.  It  would  perhaps  have 
afforded  him  some  consolation,  as  he  thus  returned 
unsuccessful  from  his  first  great  venture,  if  he  could 
have  foreseen  that  in  that  same  month  of  April,  just 
fifty- five  years  later,  his  baby  son,  Edward  Henry, 
would  start  from  New  York  for  the  Far  Western 
State  where  he  himself  had  failed,  and  would  there 
put  his  wealth,  his  power,  and  the  resources  of  his 
two  great  railway  systems,  at  the  service  of  the  peo- 
ple of  San  Francisco,  when  they  had  been  ruined  and 
made  homeless  by  earthquake  and  fire. 

Upon  his  return  to  New  York,  the  Reverend  Or- 
lando Harriman  took  up  his  residence  in  Jersey  City 
and  established  his  family  in  a  modest  but  com- 
fortable home  on  Hamilton  Square.  For  several 
years  his  position  there  was  that  of  a  semi-attached 
curate,  whose  duty  it  was  to  assist  in  the  work  of  one 
of  the  large  city  churches.  Afterward  he  was  called 
to  Clairmont,  and  then  to  West  Hoboken,  and  in  the 
latter  place  he  officiated,  in  the  early  sixties,  as  rector 
of  a  small  wooden  church  known  as  St.  John's,  to 
which  he  walked  every  Sunday  from  Jersey  City. 
When  he  voluntarily  relinquished  this  charge,  in 
October,  1866,  the  congregation  was  owing  him  more 
than  a  year's  salary,  although,  as  stated  in  resolu- 
tions of  the  vestry,  he  *'had  been  the  means  of  pre- 
serving the  church  edifice,"  and  had  enabled  the 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    9 

parish  to  "make  great  progress'*  in  the  face  of  "nu- 
merous obstacles."  The  faithful  rector  would  have 
been  better  satisfied,  perhaps,  if  the  official  recogni- 
tion of  his  services  had  been  tendered  in  a  monetary 
rather  than  a  verbal  form.  But  he  was  apparently 
fated,  throughout  his  professional  career,  to  earn 
comparatively  little  and  to  have  great  difficulty  in 
collecting  even  the  small  sums  that  were  his  due. 
With  a  family  of  six  children  to  feed,  clothe,  and 
educate,  it  was  often  difficult,  in  framing  the  domes- 
tic budget,  to  make  ends  meet;  and  it  was  not  until 
he  had  passed  middle  life  that  a  small  inheritance 
from  the  Neilson  side  of  the  family  lightened  a  little 
the  burden  of  financial  embarrassment. 

When  the  Reverend  Mr.  Harriman  returned  from 
California  and  settled  with  his  family  in  Jersey  City, 
Edward  Henry,  the  third  son,  w^as  a  little  more  than 
three  years  of  age.  During  most  of  his  boyhood  he 
lived  with  his  parents  in  the  Hamilton  Square  house 
and  attended  the  public  schools  of  Jersey  City;  but 
as  he  grew  older  his  father  thought  best  to  give  him  a 
better,  or  at  least  a  different,  educational  training, 
and  therefore  sent  him  to  the  Trinity  School  in  New 
York.^  He  still  continued,  however,  to  live  at  home, 
and  walked  to  the  school  and  back  every  day  from 

^  This  school  was  founded  in  1709.  In  April,  1914.  Mrs.  Harnnian, 
in  memory  of  her  husband,  gave  to  the  school  about  five  and  a  half 
acres  cf  ground  in  the  Bronx,  valued  at  $150,000,  for  an  athletic  field. 


lo  E.  H.  HARRIMAN 

the  old  Jersey  City  ferry,  starting  early  in  the  morn- 
ing and  returning  at  a  late  hour  in  the  afternoon. 
So  far  as  his  early  associates  remember,  there  was 
little  or  nothing  in  his  life  as  a  boy  to  indicate  ex- 
traordinary ability.  He  was  quick,  alert,  and  observ- 
ing mentally,  and  very  active  physically;  but,  like 
many  other  normal  boys,  he  was  more  interested  in 
sports  and  athletic  games  than  in  books.  He  ac- 
quired knowledge,  however,  rapidly  and  with  great 
facility,  and  when,  at  the  beginning  of  his  last  term 
in  Trinity,  he  made  up  his  mind  to  win  the  first  prize 
for  scholarship,  he  accomplished  his  self-imposed 
task  with  ease.  This,  perhaps,  was  a  foreshadowing 
of  his  future.  Many  years  later,  when  the  elderly 
pedestrian,  Weston,  started  for  a  walk  across  the 
continent,  a  newspaper  editor  in  New  York  con- 
ceived the  idea  of  interviewing  the  successful  busi- 
ness men  of  the  city  who  had  passed  the  prime  of  life, 
and  asking  them  whether  they  thought  they  could 
accomplish  a  similar  feat.  When  a  reporter  pro- 
pounded the  question  to  Mr.  Harriman,  the  great 
financier  looked  at  the  young  man  for  a  moment  and 
then  said:  *' Yes,  if  I  put  my  mind  on  it.*'  As  a  boy, 
however,  Edward  Henry  did  not  always  put  his 
mind  on  his  school  books.  He  was  naturally  restless 
and  high-spirited,  and  his  deportment  card  at  Trin- 
ity showed  that  he  was  even  more  inclined  to  fun  and 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE     ii 

mischief  than  to  serious  study.  Although  not  a  big 
bo}',  physically,  he  was  strong  and  agile,  and  when, 
in  his  walks  to  and  from  Trinity  School,  he  encoun- 
tered the  rough  street  boys  of  western  Manhattan, 
he  quickly  showed  that  he  had  spirit,  pugnacity, 
and  "scrapping"  ability  enough  to  take  care  of  him- 
self. In  this  respect,  too,  the  boy  was  perhaps  the 
father  of  the  man.  That  he  early  displayed  qualifica- 
tions for  leadership  seems  to  be  indicated  by  the  fact 
that  when,  at  the  beginning  of  the  Civil  War,  his 
playmates  in  Jersey  City  organized  a  sort  of  Boy 
Scout  company  to  march  through  the  streets  with 
regiments  of  soldiers  on  their  way  to  the  front,  Ed- 
ward Henry,  although  the  youngest  of  them  all,  was 
chosen  as  captain. 

The  boy's  education,  so  far  as  school  training  was 
concerned,  came  to  an  end  when  he  reached  the  age 
of  fourteen.  After  two  years  in  Trinity,  he  seems  to 
have  made  up  his  mind  that  it  would  be  better  for 
him,  and  perhaps  better  for  his  family,  if  he  should 
begin  at  once  the  active  work  of  life.  Coming  home 
from  school  one  day,  he  marched  into  his  father's 
study,  threw  his  books  down  on  the  table,  and  said 
to  his  surprised  parent:  ''Father,  I  have  become 
convinced  that  there  is  something  else  in  life  for  me 
besides  school  and  books;  I  am  going  to  work." 
The  father,  who  himself  had  studious  tastes,  who 


12  E.  H.  HARRIMAN 

knew  that  the  boy  had  aptitude  for  the  acquirement 
of  knowledge,  and  who  perhaps  had  plans  of  his  own 
for  the  future  of  his  son,  objected  to  this  precipitate 
abandonment  of  school,  and  tried  to  convince  the 
boy  that  to  go  into  business  at  so  early  an  age  would 
be  very  unwise.  Edward  Henry,  however,  was  ob- 
durate, and  after  listening  impatiently  to  his  father's 
arguments,  merely  repeated  his  first  declaration: 
"I  am  going  to  work."  The  father  at  last  yielded. 
By  the  exercise  of  parental  authority  he  might  per- 
haps force  the  young  student  to  return  to  school; 
but  it  did  not  seem  expedient  to  use  coercion  when 
the  boy's  heart  was  so  evidently  set  on  a  business 
career. 

Edward  Henry  was  not  long  in  finding  the  "work" 
that  he  coveted.  He  seems  to  have  gravitated  natu- 
rally to  Wall  Street,  and  there  he  soon  secured  a 
position  as  ofiice  boy,  at  a  salary  of  five  dollars  a 
week,  in  the  Stock  Exchange  house  of  D.  C.  Hays. 
His  work,  at  first,  was  largely  that  of  a  messenger, 
whose  duty  it  was  to  carry  securities  in  a  handbag 
from  his  own  office  to  the  offices  of  other  bankers 
and  brokers  with  whom  his  employers  had  business 
dealings.  He  did  not  long  remain,  however,  in  this 
position.  In  the  Wall  Street  of  that  day  there  were 
no  electric  ''tickers"  to  print  quotations  of  stocks 
and  bonds  in  the  offices  of  the  brokers,  and  business 


I 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE     13 

was  largely  carried  on  through  the  medium  of  mes- 
senger clerks,  who  carried  from  place  to  place  pads 
of  paper  on  which  current  prices  of  securities  and 
offers  to  buy  or  sell  were  written  with  a  pencil.  These 
clerks  were  known  in  the  slang  of  the  Street  as  "  pad- 
shovers."  As  soon  as  young  Harriman  had  become 
familiar  with  his  environment  and  had  made  the 
acquaintance  of  the  men  with  whom  his  firm  had 
dealings,  he  was  promoted  to  the  position  of  "pad- 
shover,"  and  in  that  capacity  he  entered  upon  his 
Wall  Street  career.  It  was  a  modest  beginning,  and 
the  financier  of  later  years  was  justified  in  saying: 
*' My  capital  when  I  began  was  a  pencil  and  this"  — 
tapping  his  head. 

The  vocation  of  messenger  clerk  or  ^'pad-shover" 
in  the  early  sixties  was,  in  a  certain  sense,  a  kinder- 
garten of  finance,  in  which  many  men  who  afterward 
gained  distinction  acquired  their  first  knowledge  of 
monetary  affairs.  Among  the  associates  of  young 
Harriman  in  this  primary  financial  school  were 
Thomas  Fortune  Ryan,  H.  K.  Burras,  Eugene  Bo- 
gart,  and  many  other  boys  who  subsequently  became 
wealthy  and  prominent  in  financial  or  industrial 
fields.  Edward  Henry,  as  a  ''pad-shover,"  was  alert, 
enterprising,  and  trustworthy,  and  had,  even  at  the 
age  of  fourteen,  great  quickness  of  perception  and  an 
accurate  and  retentive  memory.    He  could  carr>^  in 


14  E.  H.  HARRIMAN 

his  head  and  give  offhand  to  inquiring  brokers  the 
current  prices  of  stocks  and  bonds,  while  most  of  the 
other  boys  had  to  produce  or  consult  their  pads. 

As  he  grew  older  and  as  more  office  work  was  given 
him,  he  began  to  take  an  interest  in  the  reasons  for 
the  incessant  changes  in  the  prices  of  stocks  and 
bonds,  and  to  connect  them  with  transactions  and 
events  in  other  and  often  far-distant  parts  of  the 
world.  A  deep  impression  is  said  to  have  been  made 
upon  him  by  the  panic  in  Wall  Street  which  followed 
the  advance  of  discount  rates  to  ten  per  cent  by  the 
Bank  of  England  after  the  failure  of  Overend,  Gur- 
ney  &  Co.  in  1866.  This  phenomenon  showed  him 
that  the  Wall  Street  market  is  not  the  outcome  of 
local,  or  even  of  American  conditions,  and  that  the 
New  York  Stock  Exchange  is  a  part  of  the  commer- 
cial machinery  of  the  world.  He  then  began  to  take  a 
wider  view  of  the  financial  field  and  to  study  changes 
in  interest  rates  and  fluctuations  of  stocks  in  connec- 
tion with  the  causes  that  produced  them.  Before  he 
was  twenty  he  had  become  thoroughly  familiar  with 
the  brokerage  business,  and  in  1868  or  1869  he  was 
made  managing  clerk  in  the  Hays  office.  By  that 
time  he  had  made  up  his  mind  that  Wall  Street  af- 
forded the  best  field  for  the  exercise  of  his  powers  and 
had  begun  to  cherish  the  ambition  of  going  into  busi- 
ness for  himself. 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    15 

In  the  summer  of  1870,  when  Harriman  was  a  little 
more  than  twenty-two  years  of  age,  he  borrowed 
three  thousand  dollars  from  his  uncle,  Oliver  Harri- 
man, —  a  wealthy  merchant  of  the  firm  of  Low, 
Harriman  &  Co.,  —  bought  a  seat  on  the  New  York 
Stock  Exchange,  and  opened  an  office  of  his  own  on 
the  corner  of  Broad  Street  and  Exchange  Place.  It 
was  a  very  modest  office,  situated  on  the  third  floor 
of  the  building,  and  customers  had  to  climb  two 
flights  of  stairs  in  order  to  reach  it;  but  the  young 
broker,  during  his  term  of  service  as  ''pad-shover" 
and  managing  clerk,  had  made  many  acquaintances 
among  investors  and  financiers,  and  business  began 
to  find  its  way  to  him,  even  up  two  flights  of  stairs. 
But  he  soon  moved  to  a  more  accessible  location. 
''Dick"  Schell,  who  was  a  noted  speculator  of  that 
time  and  an  occasional  customer  of  Harriman,  hated 
to  climb  stairs,  and  on  one  of  his  visits  to  the  office  of 
the  young  broker  he  offered  to  give  him  business 
enough  to  pay  his  rent  if  he  would  move  to  the 
ground  floor.  Harriman  did  this  and  at  once  received 
the  trade  of  the  Schell  brothers,  two  of  whom  were 
bank  presidents,  and  one  an  official  of  the  New  York 
Central  Railroad  Company  and  a  personal  friend  of 
Commodore  Vanderbilt.  But  Harriman  soon  gained 
other  and  equally  important  customers.  C.  J.  Os- 
borne, one  of  the  prominent  speculators  of  that  time, 


I6  E.  H.  HARRIMAN 

frequently  gave  him  orders  and  declared  that  he  was 
**the  best  broker  in  Wall  Street."  August  Belmont 
(senior)  also  made  use  of  his  knowledge  and  skill  and 
said,  a  few  years  later,  that  he  was  "good  to  draw  on 
his  [Belmont's]  credit  up  to  a  million  dollars."  Every- 
body recognized  his  loyalty  and  trustworthiness. 
He  never  made  selfish  speculative  use  of  the  knowl- 
edge that  he  gained  of  his  customers'  intentions  or 
plans,  and  never  failed  to  execute  orders  with  intel- 
ligence and  discretion.  The  Equitable  Life  Assur- 
ance Society  employed  him  in  the  making  of  invest- 
ments, and  he  acted  as  broker,  now  and  then,  for 
both  Commodore  Vanderbilt  and  Jay  Gould. 

Bank  credit  at  that  time  —  before  the  establish- 
ment of  the  Clearing  House  —  was  even  more 
important  in  Wall  Street  than  it  is  now.  The  nature 
of  the  business  done  there  often  made  it  necessary 
for  a  broker  largely  to  overdraw  his  bank  account, 
and  if  his  credit  was  good,  his  checks  were  certified 
without  much  regard  to  his  actual  balance.  Such 
transactions  amounted,  in  effect,  to  temporary  loans, 
and  no  active  broker  could  get  along  without  them. 
Harriman's  ability  and  integrity  soon  became  so 
generally  recognized  that  he  never  lacked  ample 
credit,  and  three  or  four  banks,  including  the  old 
Union,  stood  ready  to  certify  his  checks  to  almost 
any  reasonable  amount.   His  business  was  profitable 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE     17 

almost  from  the  beginning,  and  his  commissions, 
even  in  the  first  year,  were  so  large  that  he  had  no 
difficulty  in  paying  back  the  three  thousand  dollars 
borrowed  from  his  uncle. 

For  three  or  four  years  after  he  became  a  broker, 
Harriman  confined  himself  strictly  to  a  commission 
business;  but  as  he  gradually  accumulated  capital, 
he  began  to  watch  for  opportunities  to  use  it  for  his 
own  benefit  on  a  larger  scale.  The  first  of  such  op- 
portunities came  in  1874,  when  "Deacon"  White,  a 
leading  speculator  of  that  day,  attempted  to  corner 
the  so-called  ''anthracite  stocks"  —  that  is,  the 
stocks  of  railroads  whose  chief  freight  business  was 
the  transportation  of  coal.  Harriman  noticed  the 
rise  in  these  stocks  and  felt  sure  that  some  one  was 
trying  to  monopolize  them  for  speculative  purposes. 
He  did  not  believe  that  the  shares  were  intrinsically 
worth  the  prices  that  were  being  oflfered  for  them, 
and  when  the  rise  seemed  to  have  reached  its  culmi- 
nation, he  sold  them  short.  The  result  vindicated  his 
judgment.  '' Deacon"  White  failed  to  get  enough  of 
the  stocks  to  establish  the  corner,  and  in  the  "slump" 
of  values  that  followed  Harriman  was  able  to  cover 
his  short  sales  at  a  profit  of  about  $150,000.  En- 
couraged by  this  success,  he  undertook  a  little  later 
a  bear  campaign  in  Delaware  &  Hudson,  which  was 
then  quoted  at  about  36.  The  invisible  forces,  how- 


1 8  E.  H.  HARRIMAN 

ever,  which  influence  the  Wall  Street  market  cannot 
always  be  foreseen  by  the  closest  observation,  nor 
estimated  by  the  shrewdest  judgment.  At  the  time 
when  Harriman  began  selling  Delaware  &  Hudson 
stock  short,  John  Jacob  Astor,  a  much  wealthier  and 
more  powerful  man,  happened  to  want  as  much  of  it 
as  he  could  get,  and  the  shares,  instead  of  falling  in 
price,  as  Harriman  expected,  rose  steadily  under  the 
active  demand  for  them  by  Astor's  brokers,  until 
the  short  seller  was  finally  obliged  to  cover  at  a  heavy 
loss.  In  this  series  of  transactions  a  large  part  of  the 
profit  that  Har;-iman  had  made  out  of  the  ''slump" 
in  the  anthracite  stocks  was  swept  away.  His  com- 
mission business,  however,  continued  to  be  profitable 
and  in  the  long  run  his  losses  were  more  than  coun- 
terbalanced by  his  gains.  About  this  time  he  gave 
his  friend,  James  B.  Livingston,  an  interest  in  the 
business  and  the  name  of  the  firm  became  "E.  H. 
Harriman  &  Co." 

During  the  first  five  years  of  his  experience  as  a 
broker,  Harriman  not  only  gained  the  confidence 
and  support  of  many  men  who  were  then  prominent 
in  Wall  Street,  but  made  warm  personal  friends  in 
the  higher  social  circles  of  the  city.  Among  such 
friends  were  Stuyvesant  Fish,  James  B.  Livingston, 
August  Belmont,  Jr.,  William  Bayard  Cutting,  R. 
Fulton  Cutting,  Dr.  E.  L.  Trudeau  (of  Saranac  Lake 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE     19 

fame),  the  two  Van  Burens,  and  George  C.  Clark. 
They  were  all  young  men  of  approximately  his  own 
age;  many  of  them  shared  his  tastes,  and  some  of 
them  were  destined  to  play  important  parts  in  his 
future  career. 

In  his  leisure  hours  Harriman  was  not  a  solitary 
student  or  a  recluse.  He  was  a  director  in  the  old 
Travelers'  Club,  on  Fifth  Avenue,  and  seldom  failed 
to  attend  its  Saturday  night  dinners.  He  was  also  a 
member  of  the  Union  and  Racquet  Clubs  and  a  pri- 
vate in  the  famous  Seventh  Regiment  of  the  Na- 
tional Guard,  which  was  then,  and  for  many  years 
afterward,  the  crack  militia  organization  of  the  State. 
In  Company  K  of  this  regiment  he  drilled  with  Au- 
gust Belmont,  Jr.,  and  other  Wall  Street  associates 
and  became  so  skillful  in  the  use  of  the  rifle  that  he 
won  many  medals  and  trophies  for  expert  marks- 
manship. Convivial  pleasures  of  the  commoner  sort 
never  appealed  to  him ;  but  he  had  a  passion  for  ath- 
letics and  out-of-door  sports.  Although  not  a  big 
man  physically,  he  was  strong  and  well  developed; 
his  movements  were  quick  and  well  coordinated,  and 
he  soon  gained  distinction  as  a  gymnast,  a  boxer, 
and  a  field  sportsman.  He  had  always  been  a  lover 
of  horses,  and  almost  the  first  purchase  that  he  made, 
after  he  was  able  to  afford  luxuries,  was  a  trotting 
horse.    He  bought  the  animal,  for  comparatively 


20  E.  H.  HARRIMAN 

little  money,  at  a  country  fair;  but  his  judgment  of 
horseflesh  was  good,  and  the  beast  that  looked  like  a 
country  scrub  proved,  after  a  little  training,  to  be  so 
fast  that  it  was  not  always  beaten  on  the  speedway, 
even  by  the  blooded  horses  of  Vanderbilt  and  Robert 
Bonner. 

Harriman,  in  his  boyhood,  had  had  many  '* scraps" 
with  the  street  urchins  of  Manhattan  on  his  way  to 
and  from  the  Trinity  School,  and  it  was  perhaps  the 
remembrance  of  these  contests  that  turned  his  atten- 
tion, in  his  early  manhood,  to  boxing.  He  took  les- 
sons of  ''Larry"  Edwards,  brother  of  the  "Billy" 
Edwards  who  then  held  the  light-weight  champion- 
ship, and  soon  became  one  of  the  quickest  and  clever- 
est boxers  in  New  York.  He  finally  helped  his  teacher 
to  establish,  over  Jones's  candy  shop  on  the  corner  of 
Broadway  and  Twenty-First  Street,  a  sort  of  boxing 
academy,  which  ultimately  became  a  fashionable 
resort  for  the  aristocratic  young  men  of  the  city  who 
were  interested  in  athletic  sports.  Harriman  himself 
was  its  chief  patron,  but  on  its  rolls  appeared  also  the 
names  of  Francis  Appleton,  Louis  Gross,  the  Living- 
ston brothers,  the  Clark  brothers,  August  Belmont, 
Jr.,  and  many  other  well-known  young  men  of  that 
time.  There  Harriman  boxed  with  his  teacher  and 
his  associates,  and  occasionally  put  on  the  gloves 
with  even  the  redoubtable  "  Billy"  Edwards  himself. 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    21 

As  a  fisherman,  a  hunter,  and  a  lover  of  outdoor 
sports  in  general,  Harriman  was  naturally  attracted 
to  the  Adirondacks,  and  he  spent  there,  both  in  his 
early  manhood  and  in  later  life,  some  of  the  most 
enjoyable  of  his  summer  vacations.  Dr.  E.  L.  Tru- 
deau,  then  a  practicing  physician  in  New  York,  was 
also  a  lover  of  the  Adirondacks,  and  in  his  autobi- 
ography, many  years  later,  he  described  in  the  fol- 
lowing words  one  of  the  earliest  meetings  that  he  had 
with  Harriman  at  Paul  Smith's: 

.  .  .  Another  friend  of  mine  and  of  the  Livingstons, 
E.  H.  Harriman,  offered  to  come  up  and  look  after  me,* 
and  spent  most  of  the  month  of  August  with  me.  A  tele- 
gram which  read,  "Here  I  come!  Head  me!"  preceded 
his  arrival  by  a  few  hours.  Paul  Smith  had  purchased 
somewhere  a  gilt  ball,  which  with  great  pride  he  had 
placed  on  the  flag-pole  in  front  of  the  hotel.  I  told  Paul 
that  I  knew  if  Ed  Harriman  caught  sight  of  that  ball 
when  he  arrived,  the  first  thing  he  would  do  would  be  to 
shoot  at  it.  As  the  stage  stopped,  Ed  Harriman  jumped 
out,  rifle  in  hand,  caught  sight  of  the  bright  ball  at  the 
top  of  the  flag-pole,  and  put  a  bullet  through  it  before 
shaking  hands  with  us  all.  This  was  before  Mr.  Harri- 
man began  his  wonderful  career  as  a  railroad  organizer 
and  a  great  financier  —  for  I  believe  he  was  still  a  clerk 
in  the  office  of  D.  C.  Hays  &  Co.  at  that  time  —  and  a 
more  light-hearted  and  better  companion  and  friend  I 
could  not  have  had.  Many  were  the  beautiful  summer 
days  we  spent  floating  over  the  lakes  in  our  boats,  hunt- 
ing, fishing,  and  camping  together  wherever  we  fancied 

^  Dr.  Trudeau  had  been  ill  and  had  gone  to  the  mountains  to  recu- 
perate. 


22  E.  H.  HARRIMAN 

to  stop  for  the  night.  Mr.  Harriman  was  an  excellent 
shot  with  a  rifle,  and  we  soon  became  rivals  —  especially 
in  the  sport  of  loon-hunting.  We  were  both  light-hearted 
young  men  in  those  joyous  days,  and  little  did  either  of 
us  know  what  responsibilities  and  struggles  the  future 
held  in  store  for  us,  and  how  absolutely  divergent  would 
be  the  paths  Fate  had  marked  out  for  us  to  walk  in. 
Many  years  afterward,  when  the  financial  and  railway 
world  was  ringing  with  Mr.  Harriman's  name,  he  came 
to  Paul  Smith's  in  his  private  car  to  see  me,  and  at  Dr. 
Seward  Webb's  invitation  he  went  down  to  inspect  some 
of  the  lakes  on  Dr.  Webb's  wonderful  forest  preserve, 
taking  me  along  with  him.  A  special  engine  was  sent  up 
by  the  New  York  Central  at  his  order  to  take  the  car 
wherever  he  wanted  to  go;  and  Dr.  Webb's  guides  and 
saddle  horses  were  there  to  meet  us  when  we  arrived. 
As  I  remarked  upon  the  beauty  and  comfort  of  his  car, 
some  recollections  of  the  old  days  must  have  crossed  his 
mind,  for  he  looked  up  at  me  with  his  keen  smile  and 
said:  *'This  is  not  half  as  much  fun,  Ed,  as  the  way  we 
travelled  about  in  the  old  days  that  summer  at  Paul 
Smith's."  And  he  was  right,  for  it  certainly  was  not. 

During  the  *' joyous  days"  in  the  Adirondacks  to 
which  Dr.  Trudeau  refers,  Mr.  Harriman's  buoyancy 
of  spirit  and  love  of  fun  found  expression  in  many 
pranks  and  practical  jokes  which  are  still  recalled  by 
the  guides  and  mountaineers  when  they  gather  about 
evening  camp-fires  in  the  great  North  Woods.  One 
summer,  for  example,  there  happened  to  be  at  Paul 
Smith's  an  English  traveler  and  sportsman  who 
made  himself  tiresome  and  unpopular  by  boasting 
extravagantly  of  his  exploits  in  the  hunting  of  big 


ANCESTRY,  BOYHOOD,  AND  EARLY  LIFE    23 

game  in  various  parts  of  the  world.  Mr.  Harriman 
sent  to  New  York  for  a  bear's  foot,  and  spent  a  large 
part  of  a  moonlight  night  in  making  tracks  with  it  in 
all  the  soft  muddy  places  he  could  find  along  the 
streams  and  around  the  lake.  The  boastful  English- 
man soon  discovered  them,  and  his  persistent  but 
fruitless  efforts  to  find  and  shoot  the  non-existent 
animal  furnished  Mr.  Harriman  and  his  friends  with 
much  secret  amusement. 

On  another  occasion,  finding  that  some  of  the 
guides  and  natives  at  Paul  Smith's  were  inclined  to 
pride  themselves  on  their  proficiency  in  **the  manly 
art  of  self-defense,"  Mr.  Harriman  brought  up  from 
New  York,  incognito,  the  light-weight  champion 
boxer,  "Billy"  Edwards,  whom  he  introduced,  under 
an  assumed  name,  as  one  of  his  Wall  Street  friends. 
The  guides,  most  of  whom  were  large  and  physlcall}^ 
powerful  men,  regarded  the  smooth-faced,  slightly- 
built  New  Yorker  with  more  or  less  disdain,  and 
hardly  thought  it  worth  while,  at  first,  to  put  on  the 
gloves  with  him.  When,  however,  they  were  finally 
persuaded  to  do  so,  they  found  themselves,  to  their 
amazement,  almost  defenseless  and  helpless  in  the 
face  of  "  Billy's"  professional  knowledge,  experience, 
and  skill.  Mr.  Harriman,  who  was  himself  in  the 
light-weight  class,  derived  a  sort  of  mischievous 
boyish  enjoyment  from  the  discomfort  and  chagrin 


24  E.  H.  HARRIMAN 

of  the  bigger  men,  but  when  they  had  all  been  com- 
pelled to  admit  that  the  youthful-looking  New  Yorker 
was  "  too  much  *'  for  them,  Harriman  allayed  their 
mortification  and  restored  their  good-humor  by  in- 
forming them  that  they  had  been  "up  against*'  the 
champion  light-weight  professional  boxer  of  America. 
In  later  years,  when  Harriman  became  a  national 
figure,  he  was  generally  regarded  by  the  public  as  a 
cold,  reticent,  austere  man,  who  was  so  completely 
absorbed  in  business  that  he  had  little  taste  for,  or 
sympathy  with,  the  practical  jokes,  boyish  play, 
and  pure  fun  of  life.  But  this  was  a  misjudgment. 
Sobered,  afterward,  as  he  undoubtedly  was,  by  the 
cares  and  responsibilities  of  a  great  business  career, 
he  always  retained  —  although  perhaps  he  did  not 
so  often  show  in  public  —  the  same  characteristics 
which  made  him  the  "light-hearted  companion"  of 
Dr.  Trudeau  in  the  years  of  his  young  manhood. 
His  was  a  personality  that  had  many  sides.  No  one 
would  have  supposed  that  the  young  Wall  Street 
broker  who  attended  Travelers'  Club  dinners,  kept  a 
trotting  horse,  excelled  in  rifle-shooting  and  athletics, 
practiced  boxing  in  "Larry"  Edwards's  "academy," 
and  played  tricks  on  guides  and  hunters  in  the  great 
North  Woods,  would  be  likely  to  take  an  interest  in 
social-betterment  work  in  a  crowded  tenement-house 
district  of  the  East  Side,  and  yet  it  was  to  the  East 
Side  that  the  young  broker  next  turned  his  attention. 


i 


CHAPTER  II 
THE  BOYS'  CLUB 

AMONG  the  intimate  personal  friends  of  Mr. 
Harriman  in  his  early  manhood  was  George  C. 
Clark,  of  the  Wall  Street  firm  of  Clark,  Dodge  &  Co. 
They  were  both  members  of  the  Union  Club,  and  be- 
tween 1870  and  1875  they  met  frequently,  not  only 
there,  but  at  Mr.  Clark's  house  where  Mr.  Harri- 
man was  always  a  welcome  visitor.  It  was  through 
the  influence  of  the  Clark  family  that  Mr.  Harriman 
was  led  to  take  an  interest  in  social-betterment  work 
on  the  East  Side.  Mrs.  Luther  Clark,  George  Clark's 
mother,  had  been  interested  for  some  years  in  the 
Wilson  Mission  School,  a  charitable  institution  es- 
tablished for  the  purpose  of  giving  an  industrial 
training  to  poor  young  girls  from  the  tenement- 
house  population  in  the  neighborhood  of  Tompkins 
Square.  This  school  occupied  part  of  a  building 
(since  torn  down)  at  the  corner  of  Eighth  Street 
(St.  Mark's  Place)  and  Avenue  A. 

Mrs.  Clark,  on  one  of  her  visits  to  this  school, 
invited  Mr.  Harriman  to  accompany  her.  He  was 
much  interested  in  all  that  he  saw,  and  when  the 
matron,   Miss  Huntington,  complained  that  they 


26  E.  H.  HARRIMAN 

were  greatly  annoyed  by  the  mischtevous  acti\ity  of 
the  lawless  street  boys,  who  teased  the  scholars  and 
threw  stones  at  the  windows  of  the  school,  he  asked 
suggestively:  *'Why  would  n't  it  be  a  good  plan  to 
have  a  school,  or  a  club,  for  the  boys,  so  as  to  get 
them  off  the  streets  and  teach  them  better  man- 
ners? "  Miss  Huntington  replied  that  she  thought  it 
would  be  an  excellent  plan  and  that,  judging  from 
her  own  experience,  it  would  probably  be  successful. 
Many  of  the  girls  of  the  neighborhood  had  been  very 
wild  and  lawless  when  first  taken  into  the  school,  but 
in  the  course  of  a  few  months  they  had  become  or- 
derly and  well-behaved  and  she  saw  no  reason  why 
boys  of  the  same  class  might  not  be  disciplined  in  a 
similar  way. 

Mr.  Harriman  at  once  decided  to  try  the  experi- 
ment, and  a  few  days  later  he  went  to  the  police 
officer  of  the  Tompkins  Square  precinct  and  asked 
his  assistance  in  getting  the  boys  of  the  neighborhood 
together  for  a  preliminary  conference.  The  police 
officer  endeavored  to  do  this,  but  the  boys,  remem- 
bering their  recent  misbehavior,  were  suspicious  and 
apprehensive.  The  invitation,  they  thought,  was 
part  of  a  scheme  to  have  them  ''pinched"  and  pun- 
ished, and  all  of  them,  at  first,  declined  to  accept  it. 
After  much  persuasion,  three  youngsters,  out  of  the 
scores  who  were  interviewed,  consented  to  meet  Mr. 


THE  BOYS'  CLUB  27 

Harriman  and  listen  to  what  he  had  to  say.  Mr. 
Harriman  first  surprised  them  by  giving  them  a 
lunch  of  sandwiches  and  hot  coffee,  and  then  laid 
before  them  his  scheme  of  establishing  a  boys'  club, 
where  they  could  meet  in  the  evening  for  social  inter- 
course and  amusement.  He  did  not  intend,  he  said, 
to  open  a  night  school,  or  a  lecture  hall.  What  he 
aimed  to  do  was  to  provide  them  with  a  place  of  their 
own  where  they  could  meet  one  another,  play  games, 
and  have  a  good  time.  The  three  youngsters,  favor- 
ably impressed  by  the  coffee  and  sandwiches,  as  well 
as  by  Mr.  Harriman's  breezy,  colloquial  talk,  ex- 
pressed approval  of  the  scheme  and  said  they  be- 
lieved the  other  boys  of  the  East  Side  would  like  it. 
Mr.  Harriman  asked  them  to  talk  with  their  com- 
panions about  it  and  to  bring  as  many  of  them  as  pos- 
sible to  another  meeting,  to  be  held  a  few  days  later. 
After  several  conferences,  Mr.  Harriman  became 
satisfied  that  with  patience  and  perseverance  the 
scheme  might  be  carried  through,  and  in  the  early 
part  of  1876  he  interested  a  number  of  his  friends  in 
it,  rented  the  basement  of  the  building  in  which  the 
Wilson  School  was  situated,  and  opened  the  Tomp- 
kins Square  Boys'  Club,  the  first  organization  of  the 
kind  in  the  United  States,  if  not  in  the  world. ^  There 

*  There  was  no  boys'  club  at  that  time  in  London,  nor  in  any  other 
European  citj '  so  far  as  known. 


28  E.  H.  HARRIMAN 

was  a  newsboys'  lodging-house  at  that  time  in  the 
Bowery,  but  its  aims  and  purposes  differed  in  many 
respects  from  those  of  the  Tompkins  Square  Club. 
The  latter  was  strictly  a  place  of  recreation,  where 
the  boys  of  the  East  Side  could  meet  one  another 
in  the  evening,  talk,  sing,  and  play  indoor  games. 
There  were  no  fees  or  dues,  and  no  discriminations 
on  racial,  religious,  or  other  grounds.  Any  boy  of 
suitable  age  was  eligible  for  membership,  and  the 
children  of  Russians,  Italians,  Germans,  Hebrews, 
Hungarians,  and  Greeks,  mingled  on  terms  of  perfect 
equality.^  The  Club,  at  first,  was  open  only  in  the 
evening  and  was  closed  altogether  from  May  to 
October.  It  had  no  superintendent  or  manager,  but 
Mr.  Harriman  and  his  friends  took  turns  in  spending 
one  evening  a  week  in  the  Club  basement  for  the 
purpose  of  keeping  the  boys  in  order,  talking  to  them 
and  helping  them  to  amuse  themselves  in  rational 
ways. 

For  several  years  the  number  of  boys  who  visited 
the  Club  was  so  small  that  any  other  man  than 
Mr.  Harriman  might  have  been  discouraged ;  but  he 

*  At  the  time  when  the  Boys'  Club  was  founded,  the  Germans  had 
a  numerical  preponderance  in  the  Tompkins  Square  neighborhood;  but 
in  later  years  the  Italians  were  in  the  majority,  and  still  later  both  of 
these  nationalities  were  outnumbered  by  Hebrews  from  various  parts 
of  Europe  and  especially  from  Russia  and  Poland.  There  were  practi- 
cally no  boys  of  pure  American  stock  in  the  Club  at  any  time.  All  the 
members  were  of  foreign  parentage,  although  most  of  them  had  been 
born  in  the  United  States. 


THE  BOYS'  CLUB  29 

never  lost  faith  in  the  practicability  of  the  enterprise 
and  inspired  his  volunteer  associates  with  his  own 
belief  in  its  ultimate  success.  Between  1880  and 
1885,  the  number  of  boys  who  visited  the  Club  with 
more  or  less  regularity  increased  from  forty  or  fifty 
to  a  hundred  or  more,  and  it  became  necessary  to 
rent  the  next  floor  above  the  basement,  in  order  not 
only  to  accommodate  them  all,  but  to  segregate  them 
in  classes  according  to  their  ages  and  tastes.  Boys  of 
fifteen  or  sixteen  were  not  interested  in  amusements 
that  satisfied  boys  of  seven  or  eight,  and  it  was  diffi- 
cult to  plan  entertainment  for  them  all  without  clas- 
sifying them  in  separate  rooms.  As  far  as  possible, 
the  initiative  in  all  matters  was  left  to  the  Club 
members.  They  were  encouraged  to  do  whatever 
they  most  wanted  to  do,  and  were  not  made  to  feel 
that  they  were  being  educated  or  trained.  The  only 
rules  or  regulations  enforced  were  those  which  the 
boys  themselves  recognized  as  necessary  for  the 
maintenance  of  order  and  fairness.  There  was  some 
reason  to  fear  that  lawless  boys  from  the  East  Side 
street  gangs  would  be  hard  to  manage,  and  that 
in  their  games  and  contests  they  might  resort  to 
violent  or  ''rough-house"  practices.  This  did  hap- 
pen occasionally  at  first,  and  there  is  a  Club  tradition 
that  Mr.  Harriman,  who  was  himself  an  accom- 
plished athlete  and  boxer,  forcibly  ejected  from  the 


30  E.  H.  HARRIMAN 

building,  on  one  occasion,  a  gang  leader,  seventeen 
or  eighteen  years  of  age,  who  attempted  to  introduce 
in  the  Club  the  bullying  and  intimidating  methods 
of  the  streets.  Such  occurrences,  however,  were 
infrequent  and  finally  ceased  altogether.  In  1907, 
when  the  nightly  admissions  to  the  Club  averaged 
one  thousand,  or  more,  the  trustees  said  in  their 
annual  report:  *'One  may  legitimately  wonder 
whether  any  other  institution  in  the  world,  with  so 
large  and  unselected  a  clientele,  can  boast  a  whole 
year's  immunity  from  a  single  case  of  serious  mis- 
demeanor." 

Five  or  six  years  after  the  establishment  of  the 
Club,  its  supporters  formed  a  definite  organization 
by  electing  a  board  of  directors  and  an  executive 
committee  —  with  Mr.  Harriman  as  chairman  of 
both  —  and  hired  a  clerk,  at  a  small  salary,  to  keep 
the  accounts  and  assist  the  successive  evening  man- 
agers in  the  work  of  supervision.  The  expenses  of  the 
Club,  at  this  time,  including  rent,  fuel,  lights,  and 
the  salary  of  the  clerk,  were  about  eleven  hundred 
dollars  a  year,  a  sum  which  was  made  up  by  con- 
tributions from  Mr.  Harriman  and  his  friends. 

In  the  early  eighties,  the  Club  managers  enlisted 
the  sympathy  and  cooperation  of  a  number  of  young 
college  and  university  graduates,  including  Sherman 
Evarts,' Walter  Jennings,  N.  C.  Fisher,  William  R. 


THE  BOYS*  CLUB  31 

Barbour,  and  Henry  Stanford  Brooks,  all  of  Yale, 
and  the  late  William  Carey,  of  the  ^'Century  Mag- 
azine." These  young  men  entered  enthusiastically 
into  the  work  of  the  Club,  not  only  by  acting  in  ro- 
tation as  evening  managers,  but  by  supervising  and 
directing  groups  of  boys  who  were  interested  in 
particular  kinds  of  amusement.  Among  the  older 
members  of  the  Club  a  liking  for  gymnastic  exercises 
soon  became  apparent,  and  this  taste  was  encouraged 
by  the  young  university  graduates,  who  had  had 
recent  experience  in  the  gymnasium  or  the  ball  field, 
and  who  were  well  qualified,  therefore,  to  act  as 
instructors.  The  Club,  at  that  time,  had  no  gym- 
nasium, and  no  room  for  one,  but  a  few  simple  ap- 
pliances were  provided,  and  classes  were  formed  for 
calisthenics,  dumb-bell  and  club  swinging,  wrestling, 
and  other  similar  exercises  that  did  not  require  much 
space. 

A  leading  part  in  the  promotion  of  athletics  was 
taken  by  Mr.  H.  S.  Brooks  (now  of  the  American 
Telegraph  &  Telephone  Company)  who  was  first 
brought  to  the  Club  by  Mr.  Carey  in  1886.  Soon 
after  he  became  interested  in  the  work,  Mr.  Brooks 
proposed  to  Mr.  Harriman  that  he  (Brooks)  give  a 
series  of  talks  to  the  boys  on  the  care  of  the  body. 
He  had  noticed,  he  said,  that  many  of  them  paid 
little  attention  to  cleanliness  of  either  body  or  cloth- 


32  E.  H.  HARRIMAN 

ing,  and  he  thought  it  would  be  a  good  idea  to  fm- 
press  upon  their  minds  the  fact  that  the  body  cannot 
do  its  best  in  athletic  sports  unless  it  is  properly 
cared  for.  Mr.  Harriman  approved  the  plan,  and  a 
few  days  later  a  notice  was  posted  on  the  door  of  the 
Club  that  on  Friday  evening  Mr.  H.  S.  Brooks  would 
begin  a  series  of  talks,  illustrated  with  magic-lantern 
pictures,  on  "The  Care  of  the  Body  —  What  to  Eat, 
What  to  Wear,  and  How  to  Train  the  Body  for  Ath- 
letic Contests.'* 

On  the  night  when  the  first  of  these  talks  was  to 
be  given,  Mr.  Harriman  and  Mr.  Brooks,  on  their 
way  to  the  Club  by  the  Eighth  Street  car,  were 
stopped  near  Tompkins  Square  by  a  great  crowd 
which  completely  filled  the  street.  "What's  the 
excitement?"  said  Mr.  Harriman  to  a  police  officer 
as  he  stepped  out  of  the  halted  car.  " It's  the  boys, 
sir,"  replied  the  policeman.  "They're  trying  to  get 
into  the  Club  to  hear  a  lecture." 

Nobody  supposed  that  a  talk  on  the  care  of  the 
body  would  be  particularly  attractive  to  the  street 
boys  of  the  East  Side;  but  magic-lantern  pictures 
were  then  a  novelty  in  that  part  of  the  city,  and  those 
who  were  not  interested  in  athletics  came  to  see  the 
pictures.  When  Mr.  Brooks  rose  to  speak,  he  faced 
an  audience  of  five  hundred  boys,  of  all  ages,  packed 
closely  together  in  a  room  that  could  not  comfortably 


THE  BOYS'  CLUB  33 

accommodate  more  than  two  hundred.  It  was  not  a 
case  of  "standing  room  only,"  but  of  breathing  room 
only. 

The  talks  on  the  care  of  the  body  were  so  success- 
ful that  the  executive  committee  decided  to  make 
Friday  night  of  every  week  a  special  Club  night,  and 
to  provide  for  that  evening  some  unusual  entertain- 
ment, such  as  an  athletic  exhibition,  a  sleight-of- 
hand  performance,  a  concert,  or  a  display  of  magic- 
lantern  pictures.  These  entertainments,  accom- 
panied by  general  singing,  for  which  the  boys  had  a 
great  liking  as  well  as  some  aptitude,  proved  to  be 
very  popular  and  were  attended  by  hundreds  of 
youngsters  who  did  not  visit  the  Club  regularly,  but 
who  were  gradually  drawn  by  this  means  into  the 
circle  of  its  daily  activities. 

In  1887,  eleven  years  after  Mr.  Harriman  had  his 
first  conference  with  the  three  boys  in  the  Mission 
School,  it  was  thought  expedient  to  give  the  Club  a 
permanent  organization,  and  in  the  fall  or  winter  of 
that  year  it  was  legally  incorporated  under  the  name 
of  "The  Boys'  Club  of  Tompkins  Square."  Control 
was  vested  in  a  board  of  directors,  with  Mr.  Harri- 
man as  president,  but  the  immediate  direction  of 
Club  affairs  was  left  in  the  hands  of  the  executive 
committee.  Among  the  incorporators  weie  many 
well-known  business  or  professional  men,  includ- 


34  E.  H.  HARRIMAN 

ing  Henry  S.  Brooks,  William  R.  Barbour,  Jabish 
Holmes,  Jr.,  Sherman  Evarts,  Thomas  G.  Sloane, 
Walter  Jennings,  Nathaniel  C.  Fisher,  and  William 
G.  Bates. 

Between  1888  and  1898  there  was  no  radical  change 
in  the  Club's  methods  or  activities,  but  the  seeds 
were  sown  of  a  number  of  new  enterprises  which 
eventually  proved  to  be  useful  and  important.  In 
1888,  for  example,  Mr.  Carey  organized  a  series  of 
steamer  excursions  for  the  Club  boys  which  finally 
developed  into  a  permanent  summer  camp,  and  a 
few  years  later  he  collected  or  contributed  books 
and  periodicals  which  formed  the  nucleus  of  a  li- 
brary. Some  additions  were  made  to  the  appliances 
for  gymnastic  exercise,  and  the  class  managers  con- 
tinued to  give  the  boys  such  instruction  and  training 
in  athletics  as  it  was  possible  to  give  in  the  limited 
room  space  then  available.  An  attempt  was  also 
made  in  this  decade  to  find  a  competent  superin- 
tendent for  the  Club,  but  although  a  number  of  men 
were  tried,  one  after  another,  none  proved  to  be 
wholly  satisfactory.  At  the  end  of  1897,  ten  years 
after  its  incorporation,  the  Club  seemed  to  have 
reached  the  limit  of  its  development  in  the  quarters 
that  it  then  occupied.  The  average  evening  attend- 
ance was  two  hundred  or  more,  and  in  the  basement 
and  on  the  first  floor  of  the  Wilson  Mission  School 


THE  BOYS'  CLUB  35 

building  a  greater  number  could  not  be  properly 
classified  or  comfortably  accommodated 

Although  Mr.  Harriman,  in  the  early  part  of  1898, 
was  absorbed  in  the  reorganization  of  the  Union 
Pacific  and  in  plans  for  the  reconstruction  of  that 
road,  he  was  not  so  preoccupied  as  to  lose  sight  of 
the  interests  of  the  Boys'  Club.  A  month  or  two 
before  his  election  as  chairman  of  the  executive  com- 
mittee of  the  Union  Pacific,  he  chanced  to  hear, 
through  H.  S.  Brooks  and  Warren  N.  Goddard,  of  a 
young  English  gentleman  then  living  in  New  York 
named  Francis  H.  Tabor,  who  had  had  some  ex- 
perience in  social-betterment  work  in  London  before 
coming  to  America,  and  who,  it  was  thought,  would 
make  a  good  superintendent.  Mr.  Harriman  made 
inquiries  and  learned  that  Mr.  Tabor  was  a  former 
Oxford  House  worker,  as  well  as  a  Cambridge  honor 
man,  and  that  he  had  already  had  some  experience 
on  the  East  Side  in  connection  with  an  institution  for 
boys  known  as  *'The  Educational  Alliance  of  the 
Patriotic  League.*'  He  therefore  requested  Mr. 
Goddard  to  have  Mr.  Tabor  make  a  study  of  the 
Boys'  Club  and  submit  a  report  on  its  condition  and 
future  possibilities.  At  a  dinner  given  by  Mr.  Harri- 
man to  the  executive  committee  in  the  University 
Club  a  few  weeks  later,  Mr.  Tabor  made  the  desired 
report  and  outlined  a  scheme  of  Club  management 


36  E.  H.  HARRIMAN 

based  largely  on  Walter  Besant's  original  plan  for 
the  People's  Palace  in  London.  Mr.  Harriman  was 
very  favorably  impressed  by  Mr.  Tabor  personally, 
as  well  as  by  the  practical  wisdom  of  his  suggestions, 
and  at  the  end  of  the  dinner  he  intimated  to  him  that 
if  he  would  undertake  to  manage  the  Club  and  carr>' 
his  ideas  into  effect,  he  (Mr.  Harriman)  would  fur- 
nish ample  financial  support  and  would  provide,  in 
the  near  future,  another  and  a  more  suitable  building 
for  the  boys*  use.  Mr.  Tabor  thereupon  agreed  to 
become  superintendent  and  assumed  the  manage- 
ment of  the  Club  in  the  autumn  of  that  year.  As 
director  of  such  an  institution  he  proved  to  be  almost 
an  ideal  man.  He  was  an  athlete,  an  accomplished 
cricket-player,  and  an  amateur  musician;  he  could 
plan  and  direct  concerts  and  dramatic  entertain- 
ments and  train  the  boys  for  them ;  he  was  interested 
in  natural  history  and  gardening,  and  he  knew  more 
or  less  about  half  a  dozen  manual  industries  and 
trades.  In  addition  to  these  acquirements  he  had  an 
intuitive  knowledge  of  boy  nature,  which  enabled 
him  to  see  things  from  the  boys'  point  of  view,  and  to 
exert  strong  influence  over  them  through  perfect 
comprehension  of  their  wishes,  impulses,  and  needs. 
Under  the  competent  management  of  Mr.  Tabor 
the  Club  soon  widened  its  scope  and  greatly  intensi- 
fied its  activities.   It  had  long  suffered  from  the  lack 


THE  BOYS'  CLUB  37 

of  indoor  and  outdoor  room  for  athletic  sports,  and 
one  of  the  first  measures  taken  by  the  executive 
committee  under  the  new  administration  was  to  rent 
suitable  apartments  around  Tompkins  Square  where 
the  boys  could  be  better  classified  by  ages  and  segre- 
gated in  small  groups  for  special  pursuits.  At  the 
same  time  the  Club  was  kept  open  in  the  afternoon, 
as  well  as  during  a  part  of  the  summer,  and  arrange- 
ments were  made  for  the  use  of  the  St.  George  ath- 
letic field  in  Hoboken,  where  ball  clubs  could  be 
trained,  and  where  the  boys  could  have  practice  in 
walking,  running,  and  jumping.  Subsequently  the 
Club  had  the  partial  use  for  a  time,  of  grounds  in 
Maspeth,  Long  Island,  and  finally,  in  1907,  it  ac- 
quired, at  an  annual  rental  of  fifteen  hundred  dol- 
lars, an  athletic  field  of  its  own  near  165th  Street  in 
the  Bronx. 

In  the  summer  of  1899,  permission  was  obtained 
from  the  owner,  Abram  S.  Hewitt,  to  use  a  part  of 
Plum  Island,  at  the  entrance  to  Long  Island  Sound, 
for  a  summer  camp,  and  under  the  supervision  of  the 
executive  committee,  this  camp  was  soon  prepared 
for  occupancy,  the  expenses  being  paid  out  of  a  spe- 
cial fund  raised  for  the  purpose  by  Mr.  Carey  and 
Mr.  Brooks.  Trips  to  the  camp  were  then  substi- 
tuted for  the  steamer  excursions  which  Mr.  Carey  had 
initiated  ten  years  before.   As  the  boys  who  visited 


38  E.  H.  HARRIMAN 

Plum  Island  in  successive  relays  during  the  summer 
had  more  time  on  their  hands  than  they  needed  for 
play,  they  improved  the  camp  in  various  ways,  took 
up  gardening,  and  finally,  at  somebody's  suggestion, 
began  to  raise  potatoes.  As  a  proof  of  Mr.  Harri- 
man's  interest  in  the  Club,  as  well  as  of  his  ability 
to  conduct  great  enterprises  without  losing  sight  of 
trivial  affairs,  it  may  be  worth  while  to  note  the  fact 
that  in  1901,  when  he  was  chairman  of  the  executive 
committee  of  the  Union  Pacific  and  was  spending 
tens  of  millions  of  dollars  in  the  reconstruction  of 
that  road,  he  kept  watch  of  the  potato-growing  on 
Plum  Island,  and  bought  the  whole  crop  of  ten  or 
fifteen  bushels  as  soon  as  the  boys  had  it  ready  for 
market.  Absorbed  as  he  was  in  the  problems  of  the 
Union  Pacific,  he  remembered  those  Boys'  Club 
potatoes,  and  he  probably  would  not  have  forgotten 
them  if  they  had  ripened  and  been  dug  during  the 
panic  that  followed  the  famous  *' Northern  Pacific 
corner"  in  Wall  Street.  He  had  that  kind  of  a  mind. 
While  a  part  of  the  Tompkins  Square  boys  were 
cultivating  flowers  and  raising  potatoes  in  the  Plum 
Island  summer  camp,  Superintendent  Tabor,  in  the 
Wilson  School  basement,  was  arranging  week-end 
walks  in  the  country,  training  baseball  and  football 
teams,  forming  singing  classes,  organizing  a  dramatic 
company,  and  interesting  the  boys  in  many  plays 


THE  BOYS'  CLUB  39 

and  pursuits  of  which  they  had  previously  known 
little  or  nothing. 

As  the  Club  grew  more  and  more  attractive,  mem- 
bership and  attendance  steadily  increased,  and  be- 
fore the  end  of  1900  it  became  evident  to  Mr.  Harri- 
man  that  the  organization  had  wholly  outgrown  the 
accommodations  available  in  the  Wilson  School  build- 
ing and  its  annexes,  and  that  a  new  home  for  it  must 
be  found  or  created.  He  therefore  purchased  several 
lots  of  land  on  the  neighboring  corner  of  Avenue  A 
and  Tenth  Street,  and  early  in  1901  laid  the  corner- 
stone of  a  five-story-and-basement  building,  fifty 
feet  by  eighty,  which,  he  thought,  would  be  large 
enough  to  meet  all  the  needs  of  the  Club  for  many 
years  to  come.  This  building  was  completed  in  De- 
cember, 1901,  and  cost,  with  land  and  furniture, 
about  $185,000,  nearly  all  of  which  sum  was  con- 
tributed by  Mr.  Harriman  personally.  It  contained 
a  carpenter  shop;  a  gymnasium  with  a  running  track 
in  the  gallery;  shower  baths;  a  reading-room  and 
library ;  a  spacious  general  room  which  could  be  used 
as  an  auditorium;  a  music-room,  a  natural  history 
room,  and  a  large  number  of  convenient  apartments 
for  classes  and  groups  interested  in  special  pursuits. 

The  erection  of  this  building  marked  the  beginning 
of  a  new  era  in  the  history  of  the  organization.  When 
the  Club  moved  into  it,  on  the  21st  of  December, 


40  E.  H.  HARRIMAN 

1901,  Superintendent  Tabor  had,  for  the  first  time, 
an  opportunity  to  carry  out  fully  his  plan  for  the 
segregation  of  the  boys  in  classes  and  groups  accord- 
ing to  their  ages  and  interests.  He  began  by  dividing 
them  broadly  into  three  great  classes  —  juniors, 
intermediates,  and  seniors.  He  then  subdivided 
these  classes  into  smaller  groups,  each  having  its 
own  organization  and  each  devoting  itself  to  the 
amusement  or  occupation  in  which  its  members  were 
most  interested.  Every  such  group  had  a  leader  — 
generally  a  young  college  graduate  who  volunteered 
his  services  —  and  by  these  leaders  the  activities  of 
the  groups  were  guided,  and  to  some  extent  regu- 
lated. There  was,  however,  no  arbitrary  compulsion. 
If  fifteen  or  twenty  boys  wished  to  take  up  basket- 
ball, or  natural  history,  or  photography,  they  formed 
a  group,  society,  or  minor  club,  elected  officers  and 
were  furnished  by  the  superintendent  with  a  leader 
who  could  show  them  how  to  do  the  particular  thing 
that  they  most  wanted  to  do.  In  the  formation 
of  these  occupational  units  the  superintendent  of 
course,  took  the  initiative;  but  there  were  always 
groups  of  boys  who  had  a  common  interest,  or  who 
were  eager  to  try  any  new  game  or  amusement  that 
the  superintendent  suggested.  Six  or  eight  of  these 
groups  were  already  in  existence  when  the  Club 
moved  into  the  new  building,  and  between  that  time 


THE  BOYS*  CLUB  41 

and  1906  the  number  increased  to  thirty-two,  in- 
cluding two  natural  history  societies,  two  out-of-door 
clubs,  an  art  class,  a  journalists'  and  printers'  club, 
a  camera  club,  a  debating  society,  a  cricket  club, 
three  association  football  teams,  four  basket-ball 
teams,  four  baseball  teams,  a  track  team,  and  half  a 
dozen  clubs  devoted  to  various  forms  of  athletic 
exercise.  Eugene  Sandow,  the  famous  "strong  man," 
gave  a  talk  and  an  exhibition  one  evening  to  the 
Club  members;  experts  from  the  Natural  History 
Museum  lectured  to  the  natural  history  societies  and 
the  out-of-door  clubs,  and  more  than  thirty  young 
college  and  university  men  gave  instruction  to  as 
many  different  groups  interested  in  all  sorts  of  pur- 
suits from  wrestling  and  cricket-playing  to  water- 
color  painting,  journalism,  and  photography. 

Among  the  group  leaders  during  this  period  were 
W.  Bayard  Cutting;  Henry  Stanford  Brooks  (sec- 
retary of  the  Club  for  more  than  twenty-five  years)  ; 
G.  Grosvenor  Dawe,  of  the  "Cosmopolitan  Maga- 
zine" and  the  Butterick  Publishing  Company; 
Trowbridge  Hall,  of  Rogers,  Peet  &  Co.;  General 
W.  W.  Skiddy;  D.  T.  Pierce,  editor  of  "Public  Opin- 
ion"; William  Osborn  Taylor,  author  of  "Ancient 
Ideals";  G.  Gordon  Brown,  a  nephew  of  J.  Pierpont 
Morgan;  and  Eliphalet  N.  Potter,  a  nephew  of 
Bishop  Potter  of  New  York.^ 


42  E.  H.  HARRIMAN 

As^  might  naturally  have  been  expected,  the  new 
building,  with  its  ample  facilities  for  entertainment 
of  all  sorts,  greatly  increased  the  Club's  attractive- 
ness, and  in  less  than  three  years  it  had  a  registered 
membership  of  five  or  six  thousand  and  a  daily  at- 
tendance of  a  thousand  or  more.  A  restaurant  was 
provided  where  simple  food  could  be  bought  at  prices 
ranging  from  three  cents  upward ;  a  savings  bank  was 
established  in  which  an  account  could  be  opened  with 
a  one-cent  deposit;  dancing  classes  were  formed;  a 
billiard  and  pool  room  was  opened  for  the  seniors, 
and  a  newspaper  —  "The  Boys'  Club  Record"  — 
was  published  regularly  by  the  young  amateurs  of 
the  journalists'  and  printers'  club.  Every  part  of  the 
building  was  occupied,  and  the  art-room,  music- 
room,  camera-room,  gymnasium,  and  roof  all  were 
used  to  their  fullest  capacity.  Strange  to  say,  the 
art-room  proved  to  be  unexpectedly  popular.  The 
drawing  teacher  had  more  pupils  than  he  could 
properly  look  after,  and  at  the  annual  exhibition  in 
1904,  the  number  of  fairly  good  pictures  was  so  great 
that  they  could  not  all  be  displayed  for  lack  of  wall 
space.  In  later  years  the  well-known  artist,  J.  W. 
Alexander,  acted  as  judge  in  the  awarding  of  prizes, 
and  one  of  the  boys  of  the  art  club  won  a  scholarship 
in  the  National  Academy  of  Design. 

Another  recreation  that  proved  to  be  popular, 


THE  BOYS'  CLUB  43 

when  room  for  it  became  available  in  the  new  build- 
ing, was  dancing.  The  boys  soon  learned  the  steps 
and  figures,  and  every  Saturday  night  a  dance  was 
given  in  the  large  intermediate  room  to  which  the 
older  boys  were  allowed  to  invite  their  girl  friends. 
The  music  was  furnished  by  the  members  of  the 
Club;  the  management  was  wholly  in  their  hands, 
and  everything  was  conducted  w^ith  the  utmost  pro- 
priety. Indeed,  in  later  years,  when  the  tango,  the 
bunny  hug,  and  other  similar  dances  became  popular 
in  certain  higher  social  circles,  the  East  Side  —  or  at 
least  the  part  of  it  represented  in  the  Boys'  Club  — 
disapproved  and  discountenanced  them. 

After  Mr.  Tabor  became  superintendent  of  the 
Club  particular  attention  was  paid  to  music.  There 
had  always  been  general  mass  singing,  but  under  the 
new  regime,  and  especially  after  the  Club  moved 
into  its  new  building,  vocal  classes  were  trained, 
either  by  the  superintendent  or  by  competent  in- 
structors, and  musical  entertainments  were  given 
annually  for  the  members  of  the  Club  and  their 
friends.  In  1902,  forty  boys,  from  seven  to  fourteen 
years  of  age,  gave  a  very  creditable  public  perform- 
ance of  "Pinafore,"  and  this  was  followed  in  later 
years  by  ''The  Pirates  of  Penzance,"  ''lolanthe," 
"The  Gondoliers,"  "The  Mikado,"  "The  Sorcerer," 
and  other  well-known  Gilbert  and  Sullivan  operas. 


44  E.  H.  HARRIMAN 

At  first,  these  entertainments  were  given  in  the 
Club  auditorium  only;  but  later,  as  the  boys  gained 
proficiency  and  confidence,  they  were  repeated  up- 
town, either  at  Sherry's  or  in  the  Berkeley  Lyceum, 
where  they  attracted  large  and  fashionable  audi- 
ences. This  innovation  not  only  drew  public  atten- 
tion to  the  Club,  but  brought  large  sums  of  money 
into  its  treasury.  In  1906,  for  example,  when  "The 
Mikado"  was  given  at  the  Berkeley  Lyceum,  the 
receipts  from  admissions  and  programme  advertising 
were  $4213.  In  addition  to  its  opera  company,  the 
Club  had  at  this  time  three  singing  classes,  two  fife- 
and-drum  corps,  a  mandolin-guitar-and-banjo  club, 
a  minstrel  troupe,  and  a  brass  band.  In  later  years 
an  orchestra  was  organized  and  trained,  and  there- 
after the  Club  gave  operas  with  its  own  orchestra, 
directed  by  a  boy  conductor. 

In  the  field  of  athletics,  the  successes  of  the  boys 
were  quite  as  noteworthy  as  in  the  field  of  music. 
In  1904,  their  wrestlers  won  championships  in  the 
105-  and  135-pound  classes  in  the  metropolitan  and 
national  tournaments  of  the  American  Athletic 
Union,  and  in  1907,  they  were  sent  to  the  World's 
Fair  in  St.  Louis,  by  Mr.  Harriman  personally,  and 
brought  back  two  championships  from  there.  In 
1906,  the  Club's  association  football  players  de- 
feated the  Merion  Club  of  Philadelphia  and  got  into 


THE  BOYS'  CLUB  45 

the  semi-finals  for  the  amateur  cup;  its  four  basket- 
ball teams  played  forty-eight  matches,  winning 
twenty-three;  its  four  baseball  teams  played  thirty- 
eight  games,  of  which  they  won  twenty-two  (in- 
cluding the  series  for  the  inter-settlement  baseball 
cup) ;  and  its  three  football  teams  won  thirty-eight 
games  out  of  fifty-four  played  in  New  York  City  and 
its  vicinity.  In  contests  with  universities  the  crack 
football  team  of  the  Club  defeated  Princeton  3  to  i 
and  Columbia  3  to  o,  and  drew  with  the  University 
of  Pennsylvania.  Many  times  in  1906,  as  the  Club 
ball  teams  returned  from  hard-fought  contests,  they 
had  reason  to  sing,  and  some  of  them  did  sing: 

"As  we  go  home  a-marching 
And  the  band  begins  to  play, 
You  can  hear  the  people  shouting, 
'The  Boys'  Club  won  to-day!'*' 

All  together,  the  Club's  athletes  secured  that  year, 
in  various  matches  and  contests,  twenty-two  tro- 
phies and  medals. 

Among  the  larger  enterprises  of  the  Boys'  Club  in 
the  first  decade  of  the  twentieth  century  none  was 
more  successful,  or  more  beneficent  in  its  results, 
than  the  summer  camp.  It  was  located  originally, 
through  the  courtesy  of  Abram  S.  Hewitt,  on  Plum 
Island,  near  Fort  Fisher,  but  in  1902  the  Govern- 
ment needed  more  land  for  military  purposes  and 


46  E.  H.  HARRIMAN 

bought  from  Mr.  Hewitt  the  ground  which  the  Club 
had  been  using.  Then,  in  1903,  after  the  death  of 
Mr.  Carey,  his  friends  raised  a  fund  and  purchased 
twenty-five  acres  of  unimproved  land  on  Long  Island, 
fronting  the  Sound,  about  eighty  miles  from  New 
York  and  three  miles  north  of  the  village  of  James- 
town. There  a  new  camp  was  established,  as  a  me- 
morial to  Mr.  Carey,  and  was  named  *'The  William 
Carey  Summer  Camp."  Part  of  the  cost  of  main- 
tenance was  borne  by  the  Club,  and  part  was  covered 
by  special  contributions  made  annually  for  the  pur- 
pose by  the  friends  of  the  Club  and  of  Mr.  Carey. 
The  real  creators  of  the  camp,  however,  so  far  as 
work  was  concerned,  were  the  boys  who  made  use  of 
it.  Beginning  in  1903,  they  gradually  cleared  and 
leveled  the  ground;  laid  out  roads,  walks,  flower- 
beds, and  a  garden;  cut  terraces  and  built  steps 
down  the  sixty-foot  bluff  to  the  beach,  and  erected 
several  wooden  buildings,  including  a  dining-hall,  a 
kitchen,  and  a  commodious  dormitory  large  enough 
to  accommodate  sixty  or  eighty  sleepers  at  a  time. 
Every  year,  during  the  summer  months,  successive 
relays  of  boys  spent  from  one  week  to  two  weeks  at 
this  vacation  resort,  and  the  total  number  of  campers 
gradually  increased  from  four  hundred  to  more  than 
six  hundred.  Season  after  season  the  camp  was  en- 
larged and  improved,  until,  in  1907,  four  years  after 


THE  BOYS'  CLUB  47 

its  establishment,  it  had  dormitories,  a  dining-hall 
and  kitchen,  a  recreation  hall  furnished  with  chairs, 
tables,  and  a  piano,  a  stable  for  the  camp  horse,  a 
tool-and-implement  house,  a  carpenter  shop,  a  vege- 
table garden,  two  tennis  courts,  a  baseball  ground,  a 
motor  boat,  and  facilities  for  keeping  chickens,  rab- 
bits, and  bees.  All  of  the  work  was  done  by  the  boys 
themselves,  and  perhaps  they  derived  as  much  pleas- 
ure from  it  as  from  the  bathing,  fishing,  boating,  and 
ball-playing  for  which  they  had  plenty  of  time  in  the 
intervals  between  their  voluntary  tasks.  And  when 
they  came  from  the  hot,  dirty,  malodorous  streets  of 
the  East  Side  in  July  or  August,  they  enjoyed  all  the 
more  the  garden,  the  flower-beds,  and  the  green, 
neatly-trimmed  lawns,  because  these  improvements 
were  the  results  of  their  own  labor.  In  the  first  nine 
years  of  the  camp's  existence  more  than  three  thou- 
sand boys  visited  it  and  returned  safely  to  their 
homes  without  a  single  death,  accident,  or  serious 
case  of  illness. 

As  the  Boys'  Club  gradually  increased  its  mem- 
bership and  diversified  its  activities,  the  problem  of 
financing  it  became  one  of  importance,  if  not  of  dif- 
ficulty. In  the  late  nineties,  its  annual  expenses  were 
about  $3200,  but  in  1901,  when  it  moved  into  the 
new  building  and  when  more  paid  labor  was  needed, 
they  mounted  up  to  $12,000.  With  the  establish- 


48  E.  H.  HARRIMAN 

ment  of  the  summer  camp,  the  renting  of  the  athletic 
field  in  the  Bronx,  and  the  engagement  of  technical 
instructors  and  salaried  assistants  to  teach  and  take 
care  of  the  largely  increased  number  of  boys,  the 
annual  budget  of  the  Club  grew  to  about  $23,000. 
Fortunately,  the  rapidly  developing  organization 
had  competent  financial  management.  To  say  noth- 
ing of  Mr.  Harriman,  it  had  in  its  board  of  trustees 
between  1901  and  1906  such  men  as  Philip  J.  Dodge, 
president  of  the  Mergenthaler  Linotype  Company; 
Alvin  W.  Krech,  of  the  Mercantile  Trust  Company; 
Otto  H.  Kahn,  of  Kuhn,  Loeb  &  Co.;  William  H. 
Baldwin,  Jr.,  president  of  the  Long  Island  Railroad 
Company ;  Loyall  Farragut,  son  of  Admiral  Farragut ; 
and  Percy  A.  Rockefeller.  These  men  not  only  man- 
aged the  finances  of  the  Club  with  prudence  and  skill, 
but  interested  in  the  work  a  large  number  of  their 
associates  and  friends.  In  1906,  the  contributors  to 
the  Club's  treasury  numbered  three  hundred  and 
forty-three,  including  such  prominent  citizens  and 
well-known  business  firms  as  James  Stillman,  Morris 
K.  Jesup,  Lord  &  Taylor,  Spencer,  Trask  &  Co., 
Jacob  H.  Schiff,  J.  Pierpont  Morgan,  Elbridge  T. 
Gerry,  George  J.  Gould,  GifTord  Pinchot,  Brander 
Matthews,  Francis  Lynde  Stetson,  Victor  Mora- 
wetz,  Paul  Warburg,  and  Winslow  S.  Pierce.  At  the 
same  time  these  and  other  friends  of  the  Club  made 


THE  BOYS'  CLUB  49 

liberal  donations  for  special  objects,  such  as  the 
establishment  of  an  employment  bureau,  the  pur- 
chase of  uniforms,  the  traveling  expenses  of  football 
teams,  and  the  training  of  the  Club's  orchestra. 

It  is  a  fact  deserving  of  notice  that  the  boys  of  the 
Club  contributed  to  its  support  as  far  as  their  limited 
means  enabled  them  to  do  so.  When  the  Club  moved 
into  the  new  building,  Mr.  Harriman,  Superintend- 
ent Tabor,  and  the  executive  committee  decided 
that  it  was  not  wise  to  offer  the  boys  everything  for 
nothing,  and  that  it  would  increase  the  latter's  self- 
respect  and  give  them  a  feeling  of  ownership  if  they 
gave  what  they  could  toward  the  Club's  expenses. 
The  youngest  of  the  boys,  therefore,  were  asked  to 
pay  one  cent  each  for  their  membership  tickets.  Boys 
of  ten  to  fourteen,  who  were  presumably  able  to  earn  a 
little  by  working  at  odd  jobs  now  and  then,  paid  ten 
cents  a  month,  while  the  seniors,  most  of  whom  had 
steady  employment,  were  required  to  contribute 
annually  two  dollars  and  a  half.  Receipts  from  these 
sources,  between  1904  and  1908,  amounted  annually 
to  from  $800  to  $1200. 

During  the  financial  panic  of  1907,  when  the  Club 
fell  more  than  $11,000  short  of  meeting  its  expenses, 
Mr.  Harriman  promptly  stepped  into  the  breach, 
made  good  the  deficit,  and  notified  the  trustees  that 
he  would  thereafter  contribute  annually  to  the  sup- 


50  E.  H.  HARRIMAN 

port  of  the  Club  fifty  per  cent  of  the  total  sum  that 
might  be  obtained  from  all  other  sources  taken  to- 
gether. This  amounted,  in  subsequent  years,  to  an 
annual  donation  of  from  $5000  to  $8000. 

The  decade  from  1899  to  1909,  which  was  the 
period  during  which  the  Boys*  Club  grew  and  de- 
veloped most  rapidly,  was  also  the  period  in  which 
Mr.  Harriman's  business  life  was  most  strenuous  and 
exacting.  Absorbed  as  he  was,  however,  in  great 
railroad  enterprises  in  the  West,  he  always  found 
time  to  consider  the  interests  and  the  welfare  of  the 
East  Side  boys.  His  personal  visits  to  the  Club  were 
less  frequent  than  they  had  been  in  the  first  thirty 
years  of  its  existence,  but  his  interest  in  it  never 
waned.  Writing  in  1910,  after  Mr.  Harriman's  death 
Superintendent  Tabor  said : 

Even  when  engaged  in  the  most  exacting  and  absorb- 
ing enterprises,  Mr.  Harriman  never  for  one  moment 
forgot  to  follow  with  pride  and  interest  the  continued 
growth  of  the  Club.  Every  report  was  read  to  him  and 
every  newspaper  account  was  laid  before  him.  He  gave 
liberally  and  was  always  willing  to  subscribe  for  any 
special  undertaking.  During  the  panic,  for  several 
months,  he  paid  all  the  expenses  of  the  Club  out  of  his 
own  pocket.  He  sent  our  champion  wrestlers  to  the 
World's  Fair  at  St.  Louis,  whence  they  returned  with 
two  championships.  He  subscribed  liberally  to  the 
**  William  Carey  Camp,"  the  most  important  of  all  the 
Club's  new  undertakings.  He  always  attended  the  an- 
nual opera  given  by  the  Junior  Singing  Club,  missing 


THE  BOYS'  CLUB  51 

only  one  performance  in  eight  years,  and  it  was  his  cus- 
tom to  walk  behind  the  scenes  and  compliment  the 
youngsters,  not  so  much  on  any  ability  they  had  shown 
as  on  the  hard  work  they  must  have  done.  He  ne^^e^ 
missed  a  chance  of  giving  pleasure  to  the  boys,  or  help- 
ing them  to  succeed.  Every  year  he  provided  one  or 
more  entertainments  for  the  youngsters,  and,  person- 
ally, I  never  knew  him  to  refuse  to  give  work  to  any  one 
of  them  whom  I  could  confidently  recommend.  He  was 
president  of  the  Club  during  the  first  eleven  years  after 
I  became  superintendent,  and  during  all  those  years  he 
never  refused  anything  which  I  considered  of  benefit  to 
the  boys.  If  I  called  at  his  office,  the  affairs  of  the  Boys* 
Club  were  never  once  kept  waiting,  and  thousands  of 
the  youth  of  the  East  Side  would  to-day  bear  witness  to 
the  help  which  his  wise  generosity  has  given  them. 

Such  was  Superintendent  Tabor's  experience  with 
Mr.  Harriman.  What  did  the  East  Side  boys  think 
of  him?  In  1907,  after  one  of  the  entertainments  in 
the  Club  auditorium,  a  reporter  of  the  "New  York 
Herald"  had  the  happy  thought  of  interviewing 
some  of  the  boys  in  the  junior  and  intermediate 
classes  and  recording,  in  their  own  words,  the  im- 
pression that  Mr.  Harriman  made  upon  them.  All 
had  seen  him,  some  had  talked  with  him,  and  it  is 
interesting  to  note  that  in  spite  of  their  immaturity 
and  the  limitations  of  their  knowledge  and  experience, 
they  discerned,  clearly  and  accurately,  some  of  the 
salient  features  of  his  character.  One  of  the  youngest 
of  them  could  only  say  that  he  was  "  the  richest  man 


52  E.  H.  HARRIMAN 

in  the  world  next  to  the  King  of  Russia" ;  but  others, 
who  were  a  few  years  older,  had  more  definite  knowl- 
edge and  clearer  impressions.  Julius  Kreig,  of  146 
East  Seventh  Street,  a  boy  twelve  years  of  age,  said : 

Mr.  Harriman's  a  great  man.  He's  president  of  a 
railroad  and  he's  worth  a  couple  of  thousand  anyhow. 
He's  a  quiet  man  and  never  tells  anybody  down  here 
anything  about  his  business.  He  is  n't  what  I  would 
call  a  good-looking  man,  but  I  '11  bet  he  could  put  up 
a  good  fight.  He  lives  'way  up  town  somewhere  in  a 
house  all  to  himself. 

Being  "worth  a  couple  of  thousand  anyhow"  and 
living  in  "a  house  all  to  himself"  seemed  to  the  tene- 
ment-house boy  of  the  East  Side  the  acme  of  wealth 
and  luxury. 

Another  twelve-year-old  boy  said: 

He 's  the  nicest  man  I  ever  saw,  and  he  gives  us  boys 
uniforms  and  pays  for  our  plays.  He  looks  just  like 
a  man  that  lives  down  here  on  our  block,  and  you 
would  n't  think  he  is  such  a  wonderful  man.  His  clothes 
are  just  like  my  father's  and  he  talks  just  like  the  rest  of 
us.  He  works  all  day  and  all  night,  but  he  has  to,  be- 
cause his  railroads  run  all  the  time  and  he  has  to  tend  to 
them. 

James  Fioldo,  fifteen  years  of  age,  who  had  evi- 
dently heard  echoes  of  the  investigation  of  Mr.  Har- 
riman's railroad  management  by  the  Interstate 
Commerce  Commission,  said: 

I  *d  rather  be  President  of  the  country  than  president  of 
all  the  railroads,  because  if  you  're  president  of  railroads 


THE  BOYS'  CLUB  53 

people  say  you're  a  bad  man.  They  say  things  like  that 
about  Mr.  Harrlman,  but  we  know  they  ain't  true.  If 
tliey  were  he  would  n't  treat  us  boys  the  way  he  does. 
Nobody  makes  him  —  he  just  does  it  himself. 

The  Boys'  Club  is  now  more  than  forty-five  years 
old.  It  had  its  origin  in  a  conference  of  Mr.  Harri- 
man  with  three  "vagrom"  street  youngsters  in  a 
room  of  the  old  Wilson  Mission  School  on  Tompkins 
Square.  For  a  decade  or  more  it  was  numerically 
weak,  and  for  nearly  a  quarter  of  a  century  its  home 
was  a  basement  on  the  corner  of  St.  Mark's  Place 
and  Avenue  A.  When,  however,  it  practically  at- 
tained its  full  development,  about  eleven  years  ago, 
It  had  six  thousand  members  and  owned  property 
valued  at  $300,000. 

Although  Mr.  Harriman's  relation  to  the  Club 
ended  with  his  death  in  the  autumn  of  1909,  it 
seems  desirable  to  complete  its  history  partly  be- 
cause it  is,  in  a  certain  sense,  a  memorial  of  him, 
and  partly  because  it  engaged  his  thoughts  dur- 
ing a  longer  period  than  any  other  organization 
with  which  he  was  ever  connected.  His  great  public 
career  as  a  railroad  rebuilder  and  administrator  was 
all  comprised  within  a  single  decade;  but  he  was  a 
predominating  figure  in  the  Boys'  Club  for  thirty- 
three  years  —  more  than  half  his  entire  lifetime. 
His  successor,  as  president  of  the  Club,  was  Temple 


54  E.  H.  HARRIMAN 

Bowdoin,  one  of  the  partners  in  the  firm  of  J.  Pier- 
pont  Morgan  &  Co.  There  was  no  other  change  in 
the  management  until  191 1,  when  Superintendent 
Tabor  resigned  and  was  succeeded  by  Louis  de  For- 
est Downer,  formerly  manager  of  the  St.  George's 
Trade  School. 

Mr.  Harriman,  up  to  the  time  of  his  death,  re- 
tained a  mortgage  of  $113,000  on  the  Club  building 
—  probably  in  order  to  keep  control  of  it  in  his  own 
hands,  but  in  1910,  in  pursuance  of  his  ante-mortem 
wishes,  Mrs.  Harriman  canceled  this  mortgage  and 
presented  it  to  the  Club  as  her  husband's  last  gift. 
At  the  same  time  she  notified  the  trustees  that  she 
would  continue  to  contribute  annually  fifty  per  cent 
of  the  total  sum  obtained  by  the  Club  from  all  other 
sources,  in  fulfillment  of  the  promise  made  by  Mr. 
Harriman  in  1907. 

About  five  years  after  Mr.  Harriman's  death,  the 
Club  was  a  second  time  deprived  of  its  president. 
In  1915,  Mr.  Temple  Bowdoin  died,  leaving  to  the 
Club  a  bequest  of  $50,000  which  he  wished  to  have 
added  to  the  permanent  endowment  fund  of  $50,000 
created  by  Lorenzo  G.  Woodhouse.  Charles  H. 
Sabin,  president  of  the  Guaranty  Trust  Company, 
was  elected  to  fill  the  vacancy  caused  by  the  death  of 
Mr.  Bowdoin,  and  at  the  same  time  W.  Averell  Har- 
riman, Mr.  Harriman's  eldest  son,  who  had  before 


THE  BOYS*  CLUB  55 

been  a  trustee  and  a  member  of  the  executive  com- 
mittee, was  chosen  as  vice-president. 

Between  1909  and  19 16,  there  was  no  great  change 
in  the  Club's  various  fields  of  activity.  In  minor 
ways,  however,  it  continued  to  extend,  in  various 
directions,  its  beneficent  influence.  In  1910,  or  191 1, 
for  example,  the  executive  committee  gathered  in 
fifteen  or  twenty  deaf  and  dumb  boys  from  the  neigh- 
borhood of  Tompkins  Square  and  organized  them  in 
a  special  group  known  as  "The  Alphabet  Club." 
It  also  established  an  office  boys*  training  school, 
where,  at  a  cost  of  fifty  cents,  a  boy  could  get  a 
course  of  instruction  that  would  prepare  him  for  the 
first  step  in  a  business  career.  In  the  year  of  its  or- 
ganization this  school  graduated  158  boys,  most  of 
whom  obtained  places  through  the  Club's  employ- 
ment bureau. 

The  pressure  upon  the  accommodations  and  facil- 
ities of  the  Club  in  19 16  became  so  great  that  the 
trustees  decided  to  erect  an  additional  building,  with 
another  gymnasium,  a  larger  auditorium,  a  new  li- 
brary and  reading-room,  a  bowling-alley,  and  a  swim- 
ming-pool in  the  sixth  story.  This  building,  which 
w^as  so  connected  with  the  first  one  that  they  prac- 
tically formed  a  single  structure,  was  completed  in 
November,  1917.  The  Club  now  has  two  gymnasi- 
ums, a  much  more  spacious  reading-room  with  a 


56  E.  H.  HARRIMAN 

well-selected  library  of  four  or  five  thousand  volumes, 
an  auditorium  which  has  twice  the  seating  capacity 
of  the  old  one,  and  a  larger  number  of  additional 
rooms  for  the  separate  groups,  or  minor  clubs,  of 
which  there  are  now  more  than  one  hundred.  A 
large  number  of  young  college  men  give  their  services 
as  club  leaders,  and  there  are  paid  instructors  for 
groups  of  boys  interested  in  music,  dramatics,  basket- 
ball, running,  wrestling,  drawing,  printing,  and  civil 
service  training. 

Since  the  Club  was  founded,  in  1876,  more  than  a 
quarter  of  a  million  boys  have  passed  through  it,  or 
been  graduated  from  it,  and  among  its  alumni,  says 
President  Sabin, 

are  three  judges,  one  congressman,  four  aldermen,  two 
assemblymen,  a  member  of  the  present  Board  of  Esti- 
mate and  Apportionment  of  the  city,  and  thousands  of 
successful  professional  and  business  men.  These  men 
have  "kept  the  faith " ;  and  the  creed  of  clean  living  and 
fair  dealing  taught  them  at  the  Club  seems  to  have 
stood  them  in  good  stead  in  their  struggle  with  the 
world.  It  must  be  remembered  that  these  alumni  were 
Gas  House  District  boys,  and  were  poor,  many  of  them 
being  the  sons  of  parents  who  could  not  read  or  write 
when  they  first  came  to  this  country.  .  .  . 

The  war  record  of  the  Boys'  Club  is  something  to  be 
proud  of.  As  more  than  ninety  per  cent  of  the  boys 
were  below  enlistment  age,  only  about  two  hundred  of 
them  were  able  to  get  into  uniform.  Of  these  several 
score  were  wounded  and  six  were  killed  in  action.   The 


i 


THE  BOYS'  CLUB  57 

stranger  visiting  the  Club  will  find  that  the  members 
do  not  forget  their  heroic  dead.  Every  night,  at  nine 
o'clock  sharp,  the  lights  in  the  main  rooms  are  extin- 
guished for  one  minute,  during  which  all  stand,  in  si- 
lence, in  memory  of  those  who  gave  their  lives  for  the 
ideals  taught  at  the  Club.  This  moment  of  silent  dark- 
ness is  most  impressive.  A  second  before,  the  great 
seven-story  building  rings  with  the  cries  and  footsteps 
of  about  a  thousand  boys,  and  all  this  is  hushed  to  the 
stillness  of  death!  When  the  lights  flash  on  again,  it  is 
wonderful  to  see  the  reverent  faces  of  the  boys,  to  whom 
this  ceremony  is  a  sacrament  to  patriotism.^ 

At  the  present  time  the  Club  has  more  than  seven 
thousand  members;  the  average  attendance  is  one 
thousand  or  more,  and  in  the  warm  months  twenty- 
five  hundred  boys  go  to  the  William  Carey  Summer 
Camp,  which  now  comprises  fifty  acres  and  contains 
twenty-eight  buildings,  erected  by  the  boys  them- 
selves. And  all  this  is  the  outcome  of  the  small  and 
feeble  organization  which  began  its  existence,  with  a 
mere  handful  of  boys,  forty-six  years  ago. 

Mr.  Harriman,  in  his  lifetime,  accomplished  work 
that  increased  the  prosperity  and  added  to  the  hap- 
piness of  a  myriad  of  people  scattered  here  and  there 
in  the  Great  West;  but  his  enterprise  and  labor  were 
fruitful  also  in  the  most  crowded  center  of  population 
in  the  East.  No  man  ever  set  his  hand  to  a  more 
important  task  in  the  field  of  social  betterment  than 

1  Statement  of  Charles  H.  Sabin,  President  of  the  Boys'  Club;  New 
York  Times,  March  6,  192 1. 


58  E.  H.  HARRIMAN 

he  did  when  he  went  to  the  East  Side  of  New  York 
City,  founded  the  Boys'  Club  in  the  basement  of  the 
Wilson  Mission  School,  and  began  to  make  useful 
American  citizens  out  of  the  undisciplined  children 
of  foreign  immigrants,  who  had  no  places  of  amuse- 
ment except  the  streets,  and  few  social  interests 
other  than  those  of  the  ward  and  precinct  * 'gangs'* 
to  which  so  many  of  them  belonged.  In  the  forty-six 
years  of  the  Club's  existence,  it  has,  more  or  less, 
formed  the  tastes  and  moulded  the  characters  of 
about  250,000  street  boys,  and  through  them  it  has 
exerted  an  enlightening  and  ameliorating  influence 
over  the  whole  foreign-born  population  of  the  great 
East  Side. 


CHAPTER  III 
ENTRANCE  INTO  THE  RAILROAD  FIELD 

REGARDED  from  the  point  of  view  of  public 
interest,  Mr.  Harriman's  life  between  1876, 
when  he  founded  the  Boys*  Club,  and  1881,  when  he 
entered  the  railroad  field,  was  comparatively  un- 
eventful. He  carried  on  his  business  successfully, 
strengthened  his  credit,  and  gradually  accumulated 
capital ;  but  he  did  not  publicly  distinguish  himself  in 
any  way,  and  was  generally  regarded  by  superficial 
observers  as  nothing  more  than  a  skillful  and  prosper- 
ous Wall  Street  broker.  During  these  uneventful 
years,  however,  his  character  was  steadily  developing 
and  he  was  gaining  the  knowledge,  experience,  and 
judgment  which,  in  later  life,  made  him  a  command- 
ing figure  in  the  financial  world.  A  change  was  taking 
place,  moreover,  in  his  aims  and  purposes.  He  had 
been  satisfied  for  a  time  with  the  mere  buying  and 
selling  of  securities  as  a  means  of  making  money  for 
others  and  for  himself;  but  the  stocks  and  bonds  in 
which  he  dealt  were  only  symbols  of  real  value,  and 
as  he  grew  older  and  became  more  conscious  of  his 
mental  powers  he  felt  an  ambition  to  manage  and 
control  the  material  properties  which  the  paper  se- 


60  E.  H.  HARRIMAN 

curities  represented.  In  order  to  do  this  he  needed 
large  capital,  and  as  he  approached  his  thirtieth  year 
he  began  to  make  and  save  money,  not  for  its  own 
sake,  nor  for  the  luxuries  and  pleasures  that  it  could 
give  him,  but  rather  for  the  use  that  he  could  make 
of  it  as  an  instrument  in  the  control  and  direction 
of  the  world's  larger  affairs.  He  wanted  to  act  —  to 
achieve  —  and  the  possession  or  control  of  capital 
was  an  indispensable  prerequisite.  ^ 

The  first  outward  indication  of  this  new  ambition 
was  the  purchase,  in  1877  or  1878,  of  the  steamer 
Twilight,  a  small  Hudson  River  boat  plying  between 
New  York  City  and  Newburgh.  This  was  the  first 
vehicle  of  transportation  that  he  ever  owned  or 
managed,  and  although  it  played  no  important  part 
in  his  subsequent  career,  its  acquisition  was  an  evi- 
dence of  his  early  interest  in  the  carrying  trade.  He 
retained  possession  of  it  only  a  short  time,  but  he 
operated  it  successfully  while  he  owned  it  and  was 
able  to  sell  it  at  a  profit. 

In  the  late  seventies,  Mr.  Harriman  met  at  the 
house  of  his  friend  George  C.  Clark,  Miss  Mary 
Williamson  Averell,  of  Ogdensburg,  New  York,  a 
cousin  of  Mrs.  Clark.  The  young  people  were  mutu- 
ally attracted  and  the  acquaintance  ultimately  re* 
suited  in  a  marriage  engagement.  The  Averells  were 
a  wealthy  and   prominent  family,  whose  ancestors 


ENTRANCE  INTO  THE  RAILROAD  FIELD    6i 

settled  in  the  valley  of  the  St.  Lawrence  in  the  latter 
part  of  the  eighteenth  century,  about  the  time  when 
Mr.  Harriman's  great-grandfather  arrived  in  New 
York  from  England.  William  J.  Averell,  Miss  Aver- 
ell's  father,  was  the  leading  banker  of  Ogdensburg, 
and  was  also  president  of  the  Ogdensburg  &  Lake 
Champlain  Railroad  Company. 

The  marriage  took  place  in  1879,  ^^  Miss  AverelFs 
home  in  Ogdensburg,  and  it  was  on  this  occasion  that 
Mr.  Harriman's  name  first  appeared  in  connection 
with  a  railroad.  A  special  train  had  been  provided 
for  the  young  couple  by  the  bride's  father,  and  when 
they  reached  the  station  in  Ogdensburg  they  found 
that  the  name  "E.  H.  Harriman"  had  been  painted 
on  the  locomotive  by  the  workman  in  the  railroad 
shops.  When  Mr.  and  Mrs.  Harriman  returned  from 
their  wedding  journey,  they  went  to  New  York, 
where  they  established  themselves  in  a  home  of  their 
own  on  East  Forty-Fourth  Street. 

Mr.  Harriman's  connection  with  the  Averell  fam- 
ily naturally  turned  his  attention  to  affairs  in  the 
northern  part  of  the  State,  and  in  1881,  two  years 
after  his  marriage,  he  became  interested  in  a  small, 
badly  managed,  and  unprofitable  railroad,  thirty- 
four  miles  in  length,  running  from  the  little  town  of 
Stanley,  near  Canandaigua,  to  a  harbor  on  Lake 
Ontario  known  as  Great  Sodus  Bay,  about  forty 


62  E.  H.  HARRIMAN 

miles  west  of  Oswego.  Although  this  piece  of  road 
had  been  in  existence  for  seven  or  eight  years,  and 
although  it  connected  with  the  Pennsylvania  Rail- 
road at  Stanley  and  with  the  New  York  Central  at 
Newark,  it  had  never  happened  to  be  absorbed  by 
either  of  these  great  transportation  systems.  It  car- 
ried a  few  local  passengers  and  small  quantities  of 
freight  destined  for,  or  coming  from,  the  lake  ports 
of  Canada;  but  its  physical  condition  was  bad,  its 
equipment,  in  the  shape  of  cars  and  locomotives,  was 
scanty,  and  it  was  regarded  by  most  railroad  men 
and  investors  as  an  unprofitable  and  undesirable 
piece  of  property.  It  was  called,  originally,  the 
"Ontario  &  Southern'*;  but  it  became  bankrupt, 
went  into  the  hands  of  a  receiver,  and  was  reorgan- 
ized in  the  middle  seventies  as  the  ''Lake  Ontario 
Southern."  In  1881,  it  was  owned  or  controlled  by 
its  president,  William  Alexander  Smith,  a  stock- 
broker of  New  York;  but  it  was  again  in  financial 
difiiculties  and  was  about  to  go  into  the  hands  of  a 
receiver  for  the  second  time  when  it  attracted  the 
attention  of  Mr.  Harriman.  To  that  shrewd  ob- 
server and  capable  financier  it  seemed  to  have  stra- 
tegic possibilities,  on  account  of  its  location  and  its 
connections  with  the  New  York  Central  and  the 
Pennsylvania.  If  it  were  rebuilt  and  properly 
equipped,  it  would  make  a  desirable  branch  for  either 


ENTRANCE  INTO  THE  RAILROAD  FIELD    63 

of  those  great  railroad  systems,  and  to  one  or  the 
other  of  them  he  beheved  that  it  might  profitably  be 
sold.  In  the  fall  of  1881,  therefore,  he,  with  S.  J. 
Macy,  of  New  York,  and  others,  bought  the  interest 
of  William  Alexander  Smith  in  the  property,  and 
about  a  year  later  reorganized  the  company  as  the 
"Sodus  Bay  &  Southern,"  with  Macy  as  president 
and  Harriman  as  vice-president.  This  was  the  turn- 
ing-point in  the  fortunes  of  the  road.  Betterments 
were  soon  undertaken,  new  equipment  was  bought, 
and  in  April,  1882,  Mr.  Harriman,  in  order  to  en- 
courage the  grain  traffic  and  thus  increase  the  road's 
business,  incorporated  the  "Sodus  Bay  Elevator 
Company"  and  proceeded  to  erect  a  grain  elevator 
on  Sodus  Point. 

Before  the  fall  of  1883,  the  physical  condition  of 
the  road  had  been  much  improved,  but  its  business 
was  still  unprofitable,  and  Mr.  Harriman  became 
satisfied  that  in  order  to  do  what  he  wished  to  do 
with  the  property,  he  would  have  to  get  complete 
control  of  it.  At  a  meeting,  therefore,  of  the  board  of 
directors  in  October,  1883,  he  named  a  price  at  which 
he  would  either  sell  his  own  stock,  or  buy  the  stock 
of  the  other  owners.  The  price  was  a  fair  one,  and 
nearly  all  of  the  principal  shareholders,  discouraged 
by  President  Macy's  last  report  on  traffic  and  earn- 
ings, decided  to  sell.    Mr.  Harriman  thus  became 


64  E.  H.  HARRIMAN 

practically  the  sole  owner  of  the  property.  He  im- 
mediately reorganized  the  directorate,  had  himself 
elected  president  in  place  of  Mr.  Macy,  and  substi- 
tuted George  H.  Strauss  for  Silas  Stuart  as  superin- 
tendent or  general  manager. 

Before  the  ist  of  June  in  the  following  year,  the 
road  (already  much  improved)  had  been  put  in  first- 
class  condition,  and  Mr.  Harriman,  in  pursuance  of 
his  original  intention,  offered  it  for  sale  to  both  the 
Pennsylvania  and  the  New  York  Central.  In  making 
his  proposition  to  the  former,  Harriman  pointed  out 
the  desirability  of  extending  the  Northern  Central  to 
Sodus  Bay  and  thus  getting  an  outlet  on  Lake  On- 
tario for  the  coal  of  the  Pennsylvania  fields  which, 
he  thought,  might  be  sold  largely  and  profitably  in 
Canada.  With  the  Vanderbilt  interests,  on  the  other 
hand,  he  used  the  argument  that  if  the  New  York 
Central  did  not  buy  the  road  the  Pennsylvania  un- 
doubtedly would,  and  that  it  was  sound  railroad 
policy  to  keep  a  rival  from  acquiring  it,  even  if  the 
Central  itself  did  not  particularly  need  it.  Great 
Sodus  Bay,  he  urged,  was  the  best  harbor  on  the 
southern  shore  of  Lake  Ontario,  and  the  railroad  that 
controlled  it  would  have  a  great  advantage  over  any 
other  line  in  competition  for  the  rapidly  increasing 
trade  of  Canada. 

The  officials  of  both  roads  were  impressed  by  Mr. 


ENTRANCE  INTO  THE  RAILROAD  FIELD    65 

Harriman's  arguments,  and  the  president  of  the  New 
York  Central  asked  for  an  option  which  would  give 
him  time  for  investigation.  The  option  was  granted 
—  for  a  substantial  consideration  —  and  when,  a  few 
days  later,  President  Thompson,  of  the  Pennsylvania, 
expressed  a  willingness  to  take  over  the  rebuilt  and 
reequipped  road,  Harriman  told  him  that  he  would 
have  to  wait  for  the  decision  of  the  New  York  Cen- 
tral. The  option  to  the  latter  expired  at  noon  on  the 
1st  of  July;  but  the  Vanderbilt  people  were  slow  in 
taking  action,  and  when,  at  the  last  moment,  they 
sent  an  official  to  renew  the  option,  Harriman  hap- 
pened to  be  absent  from  his  office.  Before  he  re- 
turned, the  specified  time  had  elapsed  and  the  owner 
of  the  road  was  at  liberty  to  conclude  the  bargain 
with  the  Pennsylvania,  which  he  immediately  did. 
Exactly  how  much  money  Harriman  made  out  of 
this  transaction  —  his  first  venture  into  the  railroad 
field  —  is  unknown ;  but  his  profits  were  large.  The 
purchase  was  advantageous  also  to  the  Pennsylvania, 
and  with  the  negotiations  that  preceded  it  began  a 
friendship  between  Harriman  and  President  Thomp- 
son which  lasted  until  the  latter's  death.  In  speaking 
some  years  later  of  the  sale  of  this  road  Mr.  Harri- 
man said: 

**This  property  had  great  strategic  value  which 
nobody  seemed  to  recognize.   I  knew  that  if  I  put  it 


66  E.  H.  HARRIMAN 

into  good  physical  condition,  so  it  could  handle  and 
develop  traffic,  the  Pennsylvania  Railroad  would 
jump  at  a  chance  to  buy  it,  in  order  to  get  an  outlet 
to  the  lake;  and  that  the  New  York  Central  would 
be  equally  anxious  to  buy  it,  in  order  to  keep  its  rival 
out.  My  experience  with  this  railroad  taught  me  a 
lesson  with  respect  to  the  importance  of  proper  phys- 
ical condition  in  a  transportation  property  which  I 
have  never  forgotten.'* 

Long  before  Mr.  Harriman  finished  rebuilding  the 
Sodus  Point  &  Southern  Railroad  and  sold  it  to  the 
Pennsylvania,  his  interests,  outside  of  Wall  Street, 
were  centering  more  and  more  in  the  railroad  field. 
In  1880,  he  became  a  director  on  the  board  of  the 
Ogdensburg  &  Lake  Champlain  Railroad  Company, 
of  which  his  father-in-law,  William  J.  Averell,  was 
president,  and  a  few  years  later,  he,  with  Senator 
Yulee,  bought  railroad  property  in  Florida,  which  he 
afterward  sold  at  a  profit  to  Morton  Plant,  of  the 
Plant  Steamship  Line.  These  interests,  however, 
were  not  important  enough  to  satisfy  his  ambition, 
or  furnish  an  adequate  field  for  the  exercise  of  his 
powers.  The  United  States  at  that  time  was  just 
entering  upon  a  remarkable  era  of  railroad  construc- 
tion. Immigrants  were  pouring  into  the  country 
more  rapidly  than  ever  before,  and  railroad  builders 
were  striving  to  make  places  of  settlement  for  them 


ENTRANCE  INTO  THE  RAILROAD  FIELD    67 

by  opening  up  and  rendering  accessible  the  vast 
areas  of  arable  land  which  still  remained  unculti- 
vated and  unoccupied  in  the  West  and  South.  In 
1880,  the  year  before  Mr.  Harriman  began  seriously 
to  consider  the  transportation  business  as  a  promis- 
ing field  for  enterprise,  the  railroad  mileage  of  the 
country  was  only  93,000  and  the  annual  immigration 
177,000.  Ten  years  later,  the  railroads  in  operation 
had  a  mileage  of  163,000,  while  immigration  had 
increased  to  789,000,  or  more  than  fourfold.  Twenty- 
nine  thousand  miles  of  new  road  were  built  between 
1879  and  1882,  and  more  than  11,000  in  the  first  year 
after  Harriman  entered  the  railroad  field.  He  prob- 
ably had  no  idea,  at  that  time,  of  engaging,  himself, 
in  railroad  construction ;  but  he  already  felt  conscious 
of  ability  as  a  financier,  and  he  believed  that  he 
could  manage  a  railroad,  or  shape  its  policies,  if  an 
opportunity  to  do  so  were  afforded  him. 

Singularly  enough,  the  first  road  that  attracted 
his  attention  was  not  a  new  one,  nor  one  whose  finan- 
cial policy  it  would  be  easy  to  control.  On  the  con- 
trary, it  was  one  of  the  oldest  and  most  successful 
transportation  lines  in  the  United  States,  namely, 
the  Illinois  Central.  This  road  was  built  in  the  early 
fifties  by  a  group  of  wealthy  New  York  merchants.^ 

*  It  was  chartered  in  1850  and  completed  in  1855.  Abraham  Lin- 
coln was  attorney  for  it  in  1857  and  had  an  annual  pass  over  it. 


68  E.  H.  HARRIMAN 

They  sold  to  capitalists  in  Holland  and  England  five 
sixths  or  more  of  its  stock,  but  it  was  a  favorite  in- 
vestment also  for  the  old  families  of  New  York,  and 
large  blocks  of  it  were  held  by  the  Astors,  the  Cut- 
tings, and  the  Goelets.  The  policies  of  the  company, 
for  the  first  twenty-five  years  of  its  existence,  were 
mainly  directed  by  William  Henry  Osborne,  an  old 
Manila  merchant  who  came  back  from  the  Philip- 
pines with  a  fortune  in  the  early  forties,  took  a  large 
amount  of  the  company's  stock,  and  in  1877  became 
virtually  the  manager  of  the  road.  For  ten  years  or 
more  the  Central  did  a  profitable  business  and  no 
attempt  was  made  to  extend  it  beyond  the  limits  of 
the  State;  but  soon  after  the  Civil  War,  the  competi- 
tion of  various  east-and-west  lines  forced  Osborne  to 
adopt  a  new  and  different  policy.  ''Up  to  that  time 
it  had  been  strictly  an  Illinois  road,  with  its  southern 
terminus  at  Cairo,  at  the  junction  of  the  Mississippi 
and  Ohio  rivers.  Its  chief  traffic  had  been  in  carrying 
grain  to  Chicago  for  shipment  east  on  lake  steamers. 
Then  the  extensions  of  the  eastern  roads  came 
through  Illinois  at  right  angles  to  the  Central.  Any 
point  along  its  line  was  about  as  near  the  seacoast  as 
Chicago;  consequently  the  new  railroads  could  give 
almost  as  good  rates  from  where  they  crossed  as 
from  Chicago,  and  the  grain  was  moving  directly 
eastward.  William  Henry  Osborne  decided  to  strike 


ENTRANCE  INTO  THE  RAILROAD  FIELD    69 

out  south  for  the  Gulf  of  Mexico.  Before  the  panic 
of  1873,  Osborne  had  advanced  the  IlHnois  Central's 
money  to  roads  building  south  down  the  Mississippi 
Valley  below  Cairo.  These  roads  failed  after  the 
panic  and  the  Illinois  Central  took  them  over.  In 
the  late  seventies  Osborne  formed  the  Chicago, 
St.  Louis  &  New  Orleans  out  of  these  roads,  re- 
built them,  and  turned  them  over  to  the  Illinois 
Central.''  1 

About  this  time  a  new  force  appeared  in  the  di- 
rectorate of  the  road  in  the  person  of  Stuyvesant 
Fish,  a  member  of  a  wealthy  New  York  family  and 
a  son  of  Grant's  ex-Secretary  of  State.  Young  Fish, 
at  his  summer  home  in  the  little  town  of  Garrison, 
New  York,  had  been  a  neighbor  of  William  Henry 
Osborne,  and  the  latter,  as  a  result  of  the  acquaint- 
ance there  formed,  caused  him  to  be  elected  a  di- 
rector of  the  company.  Then,  a  few  months  later 
(November  8,  1877),  Osborne  made  him  secretary  of 
the  Chicago,  St.  Louis  &  New  Orleans,  which  was 
the  Central's  through  line  to  the  Gulf. 

It  was  probably  the  long-standing  friendship  be- 
tween Fish  and  Harriman  which  first  led  the  latter 
to  take  an  interest  in  the  Illinois  road.  He  studied  it 
attentively,  became  satisfied  that  it  had  great  pos- 

^  "Masters  of  Capital  in  America,"  by  John  Moody,  McClure's 
Magazine,  January,  191 1. 


70  E.  H.  HARRIMAN 

sibilities  of  development  and  extension,  and  in  1881, 
when  Fish  was  placing  an  issue  of  Chicago,  St.  Louis 
&  New  Orleans  bonds,  Harriman  took  a  large  block 
of  them.  In  that  year  Garfield  was  assassinated; 
there  was  a  *' slump"  in  the  stock  market,  and  Harri- 
man, it  is  said,  "had  hard  work  in  pulling  through"; 
but  he  obtained  assistance  from  wealthy  friends, 
held  on  to  the  bonds,  and  eventually  sold  them  at  a 
substantial  profit.  The  aid  given  by  Harriman  to 
Fish  in  the  placing  of  these  bonds  probably  added 
another  to  the  ties  that  united  the  two  men.  At  any 
rate,  Harriman  took  more  and  more  interest  in  the 
road  that  Fish  was  beginning  to  manage,  and  at 
every  favorable  opportunity  invested  in  its  securi- 
ties. "Conservative  New  Yorkers,"  says  Moody, 
"looked  askance  at  the  Illinois'  new  policy  of  exten- 
sion. Its  stock  was  selling  very  low  and  many  wise 
men  were  selling  it  short.  Harriman  had  made  a 
thorough  study  of  it.  '  It 's  the  best  road  in  the  coun- 
try,* he  told  his  customers.  He  himself  bought  it  in 
such  quantities  that  his  partners  were  frightened. 
*  It  won't  cost  us  a  cent  to  carry,'  he  said ;  '  the  shorts 
will  carry  it  for  us.'  He  was  right.  He  bought  stead- 
ily, but  just  as  steadily  the  'shorts'  appeared  to  bor- 
row and  carry  it.  The  stock  went  up  and  he  made  a 
large  profit  on  it."  ^ 

*  "Masters  of  Capital  in  America,"  by  John  Moody. 


ENTRANCE  INTO  THE  RAILROAD  FIELD    71 

In  1882,  or  the  early  part  of  1883,  Harriman  seems 
to  have  made  up  his  mind  to  get  a  foothold  In  the 
Illinois  Central  by  becoming  one  of  its  directors. 
"There  was  at  that  time,"  says  Moody,  '*a  large 
Dutch  stockholding  in  the  railroad,  whose  votes, 
according  to  the  Dutch  custom  —  were  cast  by  the 
firm  that  had  placed  the  stock  in  Holland,  viz.  the 
Boissevain  Brothers.  One  of  the  firm  came  on  a  visit 
to  America.  Harriman  met  him,  and  in  a  short  time 
gained  his  confidence  and  arranged  to  hold  his  prox- 
ies in  the  Illinois  Central  meetings."  Through  the 
influence  of  the  Boissevain  Brothers,  aided  perhaps 
by  that  of  Stuyvesant  Fish,  who  had  meanwhile  be- 
come vice-president,  Harriman  was  elected  a  director 
on  the  30th  of  May,  1883,  and  became  closely  asso- 
ciated with  Fish  in  the  management  of  the  road. 
His  influence,  from  the  first,  was  exerted  in  support 
of  a  bold  policy  of  improvement  and  expansion.  The 
management,  under  William  Henry  Osborne,  had 
been  judicious  and  prudent,  but  it  had  been  conserv- 
ative, rather  than  progressive,  and  Harriman  be- 
lieved that  the  time  had  come  for  more  energy  and 
enterprise.  He  therefore  advocated  and  supported 
every  measure  that  seemed  likely  to  increase  the 
road's  business  by  extending  its  mileage.  He  ap- 
proved the  purchase  of  a  part  of  the  old  Wabash,  St. 
Louis  &  Pacific  Railroad  after  the  failure  of  that 


72  E.  H.  HARRIMAN 

company  in  1884;  he  personally  managed  the  ac- 
quirement of  the  Mississippi  &  Tennessee  Railroad, 
which  ran  from  Memphis  to  Grenada  and  which  was 
valuable  to  the  Illinois  Central  as  a  feeder,  and  he 
favored  the  construction,  in  1886,  of  the  Chicago, 
Madison  &  Northern  Railroad,  which  saved  the 
company  $200,000  a  year  by  giving  it  a  connection 
of  its  own  between  Chicago  and  its  leased  lines  in 
Iowa.  He  also  advocated  the  purchase  of  a  number 
of  other  small  properties  in  Illinois  or  the  Mississippi 
Valley  which  could  be  made  useful  and  profitable  as 
feeders  of  the  main  stem.  All  together,  in  the  first 
five  years  after  Harriman  became  a  director,  the 
Illinois  Central  increased  its  mileage  by  about  one 
thousand  miles. 

This  new  policy  of  expansion  was  not  carried 
through  without  unfavorable  comment.  Many  con- 
servative financiers  in  New  York  regarded  it  with 
apprehension,  and  in  1884,  a  little  less  than  a  year 
after  Harrim.an's  accession  to  the  directorate,  one  of 
the  leading  railroad  commentators  of  that  time,  after 
criticizing  the  road's  new  policy,  said: 

In  all  these  facts  is  there  not  evidence  of  some  lack  of 
the  conservative  spirit  so  long  dominant  in  the  com- 
pany's affairs?  It  will  be  seen  that  we  do  not  base  our 
remark  on  any  one  incident  in  the  recent  career  of  the 
property,  but  upon  a  whole  series  of  events,  all  appar- 
ently having  the  same   tendency.    We  might  be  less 


ENTRANCE  INTO  THE  RAILROAD  FIELD     73 

inclined  to  lay  stress  upon  this  apparent  departure  if  it 
were  not  for  rumors  connected  with  the  late  changes  in 
management.^ 

This  was  a  comparatively  guarded  and  cautious 
criticism,  but  others  were  more  outspoken. 

"I  don't  like  that  man  Harriman,"  said  Sam  Sloan, 
the  old  railroad  man,  who  was  a  summer  neighbor  of  Os- 
borne and  Fish  at  Garrison.  "He  and  'Stuyv'  Fish  are 
going  to  get  Osborne  in  trouble  with  the  Illinois  Central 
if  he  don't  look  out."  .  .  .  But  they  did  not  break  the 
Illinois  Central  —  far  from  it.  They  expanded  accord- 
ing to  a  definite  system,  made  possible  by  the  peculiar 
strength  of  their  corporation.  This  railroad's  credit 
was  the  best  in  the  country.  Railroad  bonds  in  the 
United  States  carried  seven  and  eight  per  cent  in  the 
'60 's  and  '70's;  they  sold  at  prices  that  often  made 
them  cost  the  railroads  ten  per  cent  a  year.  The  Illinois 
Central  was  the  exception.  It  had  sold  the  first  six, 
five,  four-and-one-half  and  four  per  cent  bonds  sold  in 
America,  and  in  the  early  '8o's  Stuyvesant  Fish  en- 
gineered the  extraordinary  feat  of  selling  for  it  a  tliree- 
and-one-half  per  cent  bond  at  par. 

If  you  buy  a  small  railroad  capable  of  earning  six  per 
cent  with  the  proceeds  of  a  sale  of  three-and-one-half 
per  cent  bonds,  you  make  a  profit  of  two  and  one  half 
per  cent  a  year;  and  when  transactions  run  into  the  tens 
of  millions  of  dollars,  profits  of  this  kind  mount  up. 
.  .  .  In  a  short  time  Harriman  had  charge  of  this  proc- 
ess of  extension,  and  in  the  middle  '90's  he  was  buying 
railroads  with  three  per  cent  bonds;  that  is,  he  was  pay- 
ing about  one  third  the  price  for  his  capital  that  many 
a  large  railroad  had  been  paying  only  twenty  years 
before.^ 

^  Commercial  &f  Financial  Chronicle,  March  i,  1884. 
*  "Masters  of  Capital  in  America,"  by  John  Moody. 


74  E.  H.  HARRIMAN 

It  was  to  this  acquirement  of  capital  by  the  sale  of 
low-interest-bearing  bonds  that  Harriman  referred 
when,  in  later  years,  he  sometimes  said:  "I  think 
this  is  a  good  time  to  buy  some  money.*' 

In  the  summer  of  1885,  a  little  more  than  two 
years  after  Harriman  became  a  director  of  the  Illi- 
nois Central,  he  retired  from  the  firm  of  E.  H.  Harri- 
man &  Co.^  and  bought  a  large  tract  of  farm  land 
near  Tuxedo  for  a  permanent  residence.  The  pur- 
chase of  this  property  was,  in  a  certain  sense,  fortui- 
tous. The  land  belonged  originally  to  James  Parrott, 
who  became  well  known  during  the  Civil  War  as  the 
inventor  of  the  "Parrott  gun.*'  The  Parrott  family 
had  become  wealthy  through  the  exploitation  of  the 
iron  deposits  in  southern  New  York;  but  with  the 
discovery  of  large  quantities  of  iron  ore  in  Pennsyl- 
vania the  New  York  mines  became  less  and  less  im- 
portant until  their  owners  were  no  longer  able  to 
carry  on  profitably  the  manufactures  based  upon 
them.  By  the  middle  eighties  the  fortune  of  James 
Parrott  had  been  so  reduced  that  he  was  compelled 
to  sell  at  auction  his  eight-thousand-acre  homestead 
farm.  This  farm,  most  of  which  was  covered  with 
dense  forest,  was  situated  in  the  Ramapo  Highlands, 
about  forty-five  miles  north  of  Jersey  City  and  ten 

^  E.  H.  Harriman's  younger  brother,  William  M.  Harriman,  then 
became  a  partner,  and  the  firm  was  afterward  known  as  "Harriman  & 
Co." 


'"  •^^'^■"^-"^'^ 


ENTRANCE  INTO  THE  RAILROAD  FIELD     75 

miles  west  of  the  Hudson  River.  Harriman,  in  his 
boyhood,  had  known  it  well.  During  the  years  that 
his  father  lived  in  Jersey  City  he  had  been  ac- 
quainted with  the  Parrotts  and  had  often  enjoyed 
their  hospitality.  When,  therefore,  his  former  play- 
mate, young  Parrott,  came  to  him  one  day  in  1885 
and  asked  him  to  attend  an  auction  sale  of  the  old 
farm  at  Tuxedo,  he  did  not  hesitate  to  go. 

The  bidding  at  the  sale  was  spirited,  but  nearly  all 
of  it  came  from  timber  speculators  whose  evident 
purpose  was  to  cut  away  the  forests  and  leave  the 
northern  Ramapo  hills  stripped  and  bare.  Harriman, 
perhaps,  did  not  go  to  the  sale  with  the  fixed  inten- 
tion of  buying;  but  when  he  saw  that  if  he  did  not 
buy,  one  of  the  most  picturesque  and  beautiful  spots 
in  Orange  County  would  be  devastated  and  ruined, 
he  determined  to  save  it.  Toward  the  end  of  the 
bidding  he  entered  the  contest  and  with  character- 
istic persistence  raised  the  bids  of  his  rivals,  one  after 
another,  until  competition  ceased.  The  eight  thou- 
sand acres  of  hill  and  forest  cost  him  a  large  sum, 
but  it  soon  became  worth  more  than  he  paid  for  it, 
and  was  eventually  enlarged  by  subsequent  pur- 
chases until  it  comprised  an  area  of  thirty  square 
miles  and  was  perhaps  the  most  extensive  country 
estate  in  the  vicinity  of  New  York. 

After  Mr.  Harriman  retired  from  the  firm  of  E.  H. 


76  E.  H.  HARRIMAN 

Harriman  &  Co.,  he  continued  to  live  in  New  York; 
but  his  chief  interest  was  then  in  IlHnois  and  he  went 
there  from  time  to  time,  either  to  attend  board  meet- 
ings or  to  consult  with  the  officers  of  the  Illinois  Cen- 
tral whose  affairs  were  beginning  to  absorb  more  and 
more  of  his  time  and  his  thoughts.  In  1887,  about 
four  years  after  he  became  a  director  and  two  years 
after  he  bought  the  Parrott  farm,  he  had  his  first 
skirmish  with  J.  Pierpont  Morgan,  the  great  banker 
and  financier,  with  whom  he  was  destined  to  cross 
swords  more  than  once  in  his  subsequent  career. 
The  Illinois  Central,  at  that  time,  was  operating, 
under  a  lease,  a  railroad  in  central  Iowa  known  as 
the  Dubuque  &  Sioux  City,  for  the  use  of  which  it 
was  paying  the  owners  thirty-eight  per  cent  of  the 
gross  earnings.  For  some  years  the  control  of  the 
road  was  profitable  to  the  Central;  but  as  the  rail- 
road mileage  of  Iowa  grew  from  less  than  twelve 
hundred  to  about  seventy-five  hundred,  competition 
became  increasingly  active,  net  earnings  declined, 
and  in  1884  the  Central  began  to  lose  money,  both 
on  the  Dubuque  &  Sioux  City  and  on  its  subsidiary 
the  Iowa  Falls  &  Sioux  City.  If  the  Central  could 
have  obtained  a  larger  share  of  the  Iowa  traffic  by 
extending  its  leased  lines,  it  might  have  changed  the 
annual  deficit  into  a  substantial  surplus;  but  it  could 
not  do   this  without  spending  its  own  money  — • 


ENTRANCE  INTO  THE  RAILROAD  FIELD     77 

largely  for  the  benefit  of  the  lessors  who  would  get 
thirty-eight  per  cent  of  the  increased  earnings  with- 
out any  outlay  of  their  own.  This  state  of  affairs  led 
Mr.  Harriman  to  bring  the  matter  before  the  Illinois 
Central  board  with  a  recommendation  that  complete 
ownership  of  the  Dubuque  &  Sioux  City  be  secured 
by  means  of  purchase.  The  lease  was  to  expire  Oc- 
tober I,  1887,  and  in  1886,  Harriman  was  authorized 
to  get  possession  of  the  road  if  possible,  either  by 
private  negotiation  or  by  purchase  of  its  stock  in  the 
open  market. 

Hearing  of  this,  some  of  the  large  stockholders  of 
the  Iowa  corporation  made  up  their  minds  that  they 
would  force  the  Illinois  Central  either  to  buy  their 
shares  at  par,  which  was  much  above  their  market 
value,  or  to  accept  a  new  lease  which  should  guaran- 
tee them  dividends  at  four  per  cent  per  annum.  In 
order  to  bring  this  about,  they  put  their  stock  into 
the  hands  of  Drexel,  Morgan  &  Co.  as  trustees,  and 
invited  all  other  Dubuque  &  Sioux  City  stockholders 
to  do  the  same.  Before  the  ist  of  January,  1887,  the 
Morgan  firm  had  received  from  the  owners  more 
than  a  majority  of  the  stock  and  was  apparently  in 
command  of  the  situation.  Harriman,  acting  for  the 
Illinois  Central,  had  bought  in  the  open  market 
about  fifteen  thousand  shares;  but  as  this  was  not 
enough  to  give  control,  and  as  no  more  could  be  had, 


78  E.  H.  HARRIMAN 

the  prospect  seemed  to  be  that  at  the  next  annual 
meeting  the  Morgan  interests  would  elect  their  own 
directors,  and  the  Illinois  Central  would  have  to 
negotiate,  for  a  purchase  or  a  renewal  of  the  lease, 
with  a  hostile  board.  Inasmuch  as  Drexel,  Morgan 
&  Co.  held  more  than  a  majority  of  the  stock  (32,680 
shares)  a  contest  with  them  seemed  to  be  almost 
hopeless;  but  Harriman  and  Fish  had  made  a  careful 
study  of  all  the  factors  in  the  problem  and  were  pre- 
pared to  take  advantage  of  any  error  or  oversight 
that  their  adversaries  might  make. 

When  the  annual  meeting  of  the  Dubuque  &  Sioux 
City  stockholders  took  place  at  Dubuque  on  the  14th 
of  February,  1887,  the  Illinois  Central  interests  con- 
trolled a  majority  of  those  present.  They  therefore 
organized  the  meeting  and  nominated  five  directors 
(a  majority  of  the  board)  friendly  to  themselves. 
The  Morgan  interests  nominated  Abram  S.  Hewitt, 
J.  Pierpont  Morgan,  Lorenzo  Blackstone,  James  A. 
Roosevelt,  and  William  G.  Hunt.  The  further  pro- 
ceedings, as  described  in  the  "Commercial  &  Finan- 
cial Chronicle,"  were  as  follows: 

During  the  call  of  the  roll  of  stockholders,  a  large 
number  of  proxies,  representing  about  5000  shares  of 
stock,  were  presented  and  rejected  by  the  parties  in 
control  of  the  meeting,  on  the  ground  that  proxy  vot- 
ing in  Iowa  is  not  legal.  The  whole  block  of  stock  held 
by  Drexel,  Morgan  &  Co.,  as  trustees  was  rejected  also, 


ENTRANCE  INTO  THE  RAILROAD  FIELD     79 

on  account  of  the  vote  having  been  signed  by  Drexel, 
Morgan  &  Co.  personally,  and  not  as  trustees.  The 
only  shares  which  could  be  voted  were  those  held  by 
Harriman  &  Co.,  who  voted  them  personally.  At  the 
close  of  the  meeting,  the  following  were  declared  elected : 
Edward  Harriman,  Albert  Wilcox,  and  William  D. 
Guthrie,  of  New  York;  and  Edward  C.  Woodruff,  of 
New  Jersey.  To  fill  the  unexpired  term  of  George  H. 
Warner,  resigned,  W.  J.  Knight,  of  Dubuque,  was  de- 
clared elected.  During  the  noon  recess,  the  persons  in- 
terested with  Drexel,  Morgan  &  Co.  held  a  meeting  and 
elected  the  former  directors:  James  A.  Roosevelt, 
Abram  S.  Hewitt,  J.  Pierpont  Morgan,  and  Lorenzo 
Blackstone  for  the  full  term,  and  William  G.  Hunt  for 
the  unexpired  term.  There  is  no  doubt  but  the  final  ad- 
judication of  the  matter  will  be  made  by  the  courts. ^ 

The  contest,  as  predicted,  was  carried  into  the 
courts,  where  litigation  continued  for  some  months. 
The  Morgan  party  refused,  at  first,  to  make  any 
compromise,  but  insisted  on  their  original  terms, 
namely,  purchase  of  their  shares  at  par,  or  a  renewal 
of  the  lease  upon  a  guarantee  of  four  per  cent  divi- 
dends. The  Illinois  Central  Company  declined  to  be 
held  up.  Finally  Harriman,  by  authority  of  the 
board,  sent  a  brief  note  to  Drexel,  Morgan  &  Co., 
offering  them  eighty  dollars  a  share  for  the  stock 
held  by  them,  and  intimating  that  if  this  offer  were 
rejected,  it  would  not  be  renewed.  Drexel,  Morgan 
&  Co.  and  their  associates,  finding  themselves  out- 

^  Press  dispatches  from  Dubuque,  quoted  in  the  Commercial  &*  Fi- 
nancial Chronicle,  February  19,  1887. 


80  E.  H.  HARRIMAN 

generaled,  accepted  the  offer,  and  the  Dubuque  & 
Sioux  City  became,  shortly  afterward,  the  property 
of  the  Illinois  Central. 

To  Wall  Street  the  result  was  a  surprise.  No  one 
had  supposed  that  Fish  and  Harriman  could  defeat 
Drexel,  Morgan  &  Co.  when  the  latter  held  a  clccir 
majority  of  the  Dubuque  &  Sioux  City  stock.  Inter- 
ests hostile  to  the  Illinois  Central  criticized  Harri- 
man's  methods,  of  course,  and  Morgan,  who  had 
never  before  paid  much  attention  to  Harriman,  con- 
ceived a  violent  dislike  for  him ;  but  observant  opera- 
tors in  the  field  of  railroad  strategy  began  to  regard 
him  with  increasing  respect. 

Before  the  end  of  1886,  the  intimate  knowledge 
that  Mr.  Harriman  had  acquired  of  the  Illinois  Cen- 
tral and  its  operations,  the  boldness  and  aggresvsive- 
ness  of  his  plans,  and  the  skill  that  he  displayed  in 
dealing  with  questions  of  finance,  made  him  one  of 
the  most  prominent  and  influential  members  of  the 
board  of  directors;  and  on  the  28th  of  September, 
1887,  less  than  a  year  after  his  successful  struggle 
with  J.  Pierpont  Morgan  for  possession  of  the  Du- 
buque &  Sioux  City  Railroad,  he  w^as  elected  vice- 
president  in  place  of  Stuyvesant  Fish,  who,  a  short 
time  before,  had  succeeded  James  C.  Clarke  as  presi- 
dent. That  fall  Mr.  and  Mrs.  Harriman  went  to 
Chicago  to  live  and  remained  there  until  the  follow- 


ENTRANCE  INTO  THE  RAILROAD  FIELD     8i 

ing  summer.  They  then  returned  to  New  York ;  took 
possession  of  the  Parrott  farm  to  which  they  gave 
the  name  of  "  Arden,"  and  began  the  transformation 
of  it  into  the  splendid  country  estate  that  it  after- 
ward became. 

In  the  early  part  of  1887,  just  as  Mr.  Harriman 
was  preparing  to  go  to  Dubuque  to  attend  the  meet- 
ing of  the  stockholders  of  the  Dubuque  &  Sioux  City 
Railroad  Company,  an  event  occurred  which  was 
destined  to  have  an  important  bearing  upon  his 
subsequent  career,  namely,  the  enactment  of  the 
Interstate  Commerce  Law.  This  legislation  was  the 
outcome  of  instability  of  railroad  rates  due  mainly 
to  unrestricted  competition  among  carriers.  Its  ob- 
jects were  to  forbid  rebates,  "drawbacks,"  and  other 
forms  of  discrimination;  to  prevent  "pooling"  and 
rate-fixing  by  agreement;  and  to  compel  railroads  to 
compete  with  one  another  fairly  and  in  the  open.  If 
the  law  had  done  nothing  more  than  this,  it  might 
not  perhaps  have  affected  Mr.  Harriman  personally; 
but  it  not  only  forbade  "pooling"  and  rate  discrim- 
ination, but  created  a  railroad  commission  to  which 
it  gave  power  "to  inquire  into  the  management  of 
the  business  of  all  common  carriers;  to  keep  itself 
informed  as  to  the  manner  in  which  the  same  is  con- 
ducted; to  compel  the  attendance  of  witnesses  and 
the  production  of  all  books,  papers,  tariffs,  contracts, 


82  E.  H.  HARRIMAN 

agreements,  and  documents  relating  to  any  matter 
under  investigation;  to  invoke  the  aid  of  any  court 
of  the  United  States  in  requiring  the  attendance  and 
testimony  of  witnesses  and  the  production  of  books, 
papers,  and  documents";  and  to  restrain  or  punish 
anything  that  "  has  been  done,  or  omitted  to  be  done 
in  violation  of  the  provisions  of  this  act,  or  of  any 
law  cognizable  by  the  Commission."  ^ 

Mr.  Harriman  probably  did  not  anticipate,  when 
he  read  these  provisions  of  the  new  law,  that  it  would 
affect  particularly  his  future  career,  but  on  this  legis- 
lation was  based,  twenty  years  later,  one  of  the  bit- 
terest and  most  unjust  attacks  ever  made  upon  his 
personal  character  and  integrity.  The  attack  did  not 
succeed,  but  through  the  publicity  given  in  the  news- 
papers to  its  unfounded  assertions  and  accusations, 
it  caused  a  multitude  of  uninformed  readers  to  mis- 
judge his  motives,  his  purposes,  and  his  actions. 

It  is  a  curious  fact  that  the  first  conflict  which 
Harriman  had  with  a  high  official  of  the  Illinois  Cen- 
tral Company,  after  he  became  vice-president,  arose 
out  of  the  very  question  of  rates  with  which  the 
Interstate  Commerce  Law  dealt.  It  was  customary 
at  that  time  for  general  managers,  or  traffic  mana- 
gers, to  change  rates  at  their  own  discretion,  putting 
them  up  or  down  as  circumstances  and  the  fluctua- 
1  Sections  12,  13,  and  15  of  the  Act  of  February  4,  1887. 


ENTRANCE  INTO  THE  RAILROAD  FIELD    83 

tions  of  competition  seemed  to  require.  In  deference 
to  public  opinion,  and  with  a  view  to  keeping  a 
watchful  eye  on  its  own  rate-making  machinery,  the 
Illinois  Central  Company,  in  April,  1889,  amended 
one  of  its  by-laws  so  as  to  provide  that  thereafter  no 
reduction  of  rates  should  be  made  without  the  ap- 
proval of  the  president,  who  should  report  his  deci- 
sion to  the  board  of  directors.  The  making  of  rates, 
at  that  time,  was  in  the  hands  of  the  general  manager, 
E.  T.  Jeffery,  a  railroad  man  of  long  experience,  who 
was  regarded  as  one  of  the  ablest  operating  officials 
in  the  Middle  West.  Mr.  Jeffery  had  never  approved 
of  the  change  in  the  by-laws,  and  President  Fish  had 
promised  him  that  if  he  would  stay  in  the  service  of 
the  Illinois  Central  until  the  end  of  the  year,  he 
should  not  be  deprived  of  the  rate-making  power. 
In  the  summer  of  1889,  President  Fish  went  to  Eu- 
rope, and  Harriman,  moving  again  to  Chicago,  took 
Fish's  place  as  acting  president.  In  a  memorandum 
written  by  Harriman  at  that  time  his  conflict  with 
the  general  manager  is  described  as  follows: 

September  2,  1889 
E.  T.  Jeffery  was  in  my  office  about  9.40  a.m.  After 
some  talk  about  the  purchase  of  twenty  new  locomo- 
tives, I  remarked  to  the  General  Manager  that  while  I 
remained  in  Chicago  I  should  expect  the  matter  of  rates, 
m  accordance  with  By-Law  H,  to  be  referred  to  me.  He 
sat  and  looked  at  me  for  about  half  a  minute  and  then 


84  E.  H.  HARRIMAN 

jumped  up  and  said:  *4f  that's  your  decision,  I  quit, 
and  will  turn  the  road  over  to  you  at  12  o'clock  to-day." 
I  said  that  I  was  very  sorry  and  hoped  he  would  not  act 
hastily.  He  said :  "  VVell,  I  quit  at  5  o'clock  and  turn  the 
road  over  to  you."  He  then  went  on  to  tell  about  the 
arrangement  with  President  Fish.  I  stated  that  I  could 
not  see  any  other  way  than  to  carry  the  by-law  into 
effect.  He  said:  "All  right,  then  I  quit,"  and  went 
out. 

This  precipitate  resignation  placed  the  acting 
president  in  a  somewhat  embarrassing  position.  He 
was  not  regarded  at  that  time  as  a  practical,  or  at 
least  an  experienced,  railroad  man;  he  had  only  re- 
cently become  an  officer  of  the  company,  and  there 
might  be  a  question  as  to  his  right  to  disregard  a 
promise  made  to  Jeffery  by  President  Fish.  Harri- 
man,  however,  did  not  shrink  from  responsibility, 
nor  did  he  hesitate  to  act  promptly  on  the  merits  of 
the  case  as  it  was  presented  to  him.  A  few  hours 
later  he  wrote  to  Mr.  Jeffery  the  following  note: 

Chicago,  September  2,  1889 
E.  T.  Jeffery 

General  Manager 
Dear  Sir : 

Your  letter  of  even  date  containing  your  resignation 
has  just  been  handed  to  me.  Believing,  as  I  do,  that  the 
wishes  of  the  Directors,  as  expressed  in  the  by-laws  of 
the  company,  should  be  respected  and  an  earnest  at- 
tempt made  to  work  under  them,  and  that  if  then  found 
impracticable  the  by-laws  should  be  referred  to  the 


ENTRANCE  INTO  THE  RAILROAD  FIELD    85 

Board  for  a  modification,  I  see  no  other  course  than  to 
accept  your  resignation,  which  I  do  with  deep  regret. 
Truly  yours 

E.  H.  Harriman 

Acting  President 

On  the  same  day  Harriman  appointed  C.  A.  Beck  as 
general  manager,  A.  W.  Sullivan  as  general  superin- 
tendent, and  E.  G.  Russell  as  superintendent  of  lines 
in  Illinois;  all  of  these  officers  being  moved  up  one 
grade  in  order  to  fill  Mr.  Jeffery's  place. 

The  resignation  of  the  general  manager  of  the 
Illinois  Central  was  widely  commented  upon,  both 
in  financial  circles  and  in  the  press.  Jeffery,  at  that 
time,  was  more  generally  known,  perhaps,  as  a  rail- 
road man,  than  Harriman,  and  his  resignation  was 
attributed  in  some  quarters  to  an  "old  quarrel." 
But  it  was  not  the  result  of  a  quarrel;  it  turned  on  a 
question  of  principle.  In  a  long  editorial  comment- 
ing on  the  episode,  the  ''Commercial  &  Financial 
Chronicle"  justly  said: 

This  [the  action  of  Acting  President  Harriman]  is  in- 
teresting as  showing  the  position  of  the  Illinois  Central 
on  the  question  of  maintaining  rates,  than  which  there 
is  at  present  no  more  important  problem  affecting  rail- 
road interests.  The  Illinois  Central  is  evidently  in  accord 
with  the  prevailing  determination  to  limit  and  control 
the  rate-making  power  in  every  conceivable  way,  so  that 
alterations  in  tariff  schedules  shall  occur  only  after  the 
most  mature  deliberation  and  with  a  full  knowledge  of 


86  E.  H.  HARRIMAN 

the  probable  consequences.  We  all  know  the  evils  that 
arose  under  the  opposite  policy,  by  which  almost  every 
subordinate  official  had  it  within  his  power  to  upset  the 
most  carefully  prepared  plans  for  observing  created  com- 
pacts. We  do  not  refer  in  this  to  the  Illinois  Central, 
which,  thanks  to  its  good  management,  has  not  been 
troubled  in  that  way;  but  to  the  generally  prevailing 
principle,  up  to  the  beginning  of  the  present  year,  on 
most  Western  roads. 

The  evil  was  a  crying  one  and  had  to  be  redressed,  and 
there  was  no  point  on  which  the  bankers  and  presidents 
were  more  strenuous  than  that  there  must  be  reform  in 
this  respect,  and  that  subordinates  must  be  shorn  of  the 
power  of  disturbing  rates.  Of  course,  in  the  Illinois  Cen- 
tral case  the  circumstances  were  peculiar.  Mr.  Jeffery 
is  not  to  be  classed  in  the  category  of  subordinate  offi- 
cials. His  character  and  position,  his  great  ability  and 
practical  services,  and  the  fact  that  he  had  so  signally 
justified  the  confidence  placed  in  him  in  the  past,  were 
elements  entitling  him  to  special  consideration.  The 
rate-making  power  might  safely  have  been  continued  in 
his  control.  But,  on  the  other  hand,  the  point  at  issue  in- 
volved a  principle,  and  the  position  of  the  Illinois  Cen- 
tral was  in  some  respects  exceptional.  It  had  refused 
to  become  a  party  to  the  Interstate  Railway  Associa- 
tion, and  yet,  public  opinion  would  not  tolerate  any 
wide  distribution  of  the  power  to  make  rates.  It  was 
doubtless  to  show  that  they  were  in  full  sympathy  with 
the  spirit  and  purposes  of  the  Interstate  Railway  Asso- 
ciation, in  regard  to  rate  matters,  that  the  amendment 
to  the  by-laws  was  originally  made  by  the  Directors, 
and  it  requires  no  stretch  of  the  imagination  to  suppose 
that  Acting  President  Harriman  was  actuated  by  the 
same  motives  when  he  insisted  that  the  expressed  wishes 
of  the  Directors  in  this  respect  should  not  be  disre- 
garded.   In  any  event,  we  have  in  the  action  taken  an 


ENTRANCE  INTO  THE  RAILROAD  FIELD     87 

assurance  that  the  Illinois  Central  management,  like 
the  Interstate  Railway  Association,  means  to  make 
changes  in  rates  a  difficult  matter,  thus  tending  to  en- 
sure greater  stability  and  uniformity;  and  if  there  is 
anything  that  would  tend  to  reconcile  the  owners  of  the 
property,  and  the  general  public  as  well,  to  the  loss  of 
such  an  excellent  and  capable  official  as  General  Mana- 
ger JefTery,  it  is  that  very  circumstance. 

Harriman's  action  was  apparently  approved  by 
the  board  of  directors,  and  no  exception  to  it  seems 
to  have  been  taken  by  President  Fish  when  he  re- 
turned from  Europe. 


CHAPTER  IV 
ILLINOIS  CENTRAL  AND  ERIE 

IN  the  early  part  of  1890,  when  the  country  was 
prosperous  and  when  railroads  generally  were 
increasing  their  equipment  and  extending  their  mile- 
age in  eager  competition  for  traffic,  an  incident  oc- 
curred in  the  history  of  the  Illinois  Central  that 
showed  not  only  the  strength  of  the  influence  that 
Mr.  Harriman  exerted  in  the  directorate  of  that  road, 
but  also  the  soundness  of  his  judgment  in  forecasting 
the  future. 

In  the  summer  of  1889,  the  Central's  board  of 
directors  appointed  a  special  Committee  on  Rates, 
Revenues,  and  Expenditures,  and  instructed  its 
members  to  make  a  careful  study  of  the  company's 
needs  and  resources,  and  to  submit  a  full  report  on 
the  financial  policy  that  it  would  be  best  to  pursue 
in  the  near  future,  together  with  a  programme  of 
expenditures  for  the  next  two  or  three  years. 

The  committee  considered  the  subject  for  several 
months  and,  in  January,  1890,  made  a  voluminous 
report  in  which  it  strongly  recommended  the  ex- 
penditure of  a  large  sum  of  money  for  the  extension 
and   improvement  of  the  system.    ''Such  expendi- 


ILLINOIS  CENTRAL  AND  ERIE  89 

tures/'  the  committee  said,  "should  be  spread  over 
a  period  of  not  less  than  three  and  one  half  years, 
so  that  the  results  will  show  through  at  least  four 
annual  reports.'* 

Inasmuch  as  this  recommendation  was  in  accord- 
ance with  the  policy  that  Mr.  Harriman  had  steadily 
favored  throughout  the  period  of  his  association  with 
the  road,  no  doubt  seems  to  have  been  felt  that  he 
would  approve  it.  He  had  never  hesitated  to  spend 
money  freely  when  prospective  results  seemed  to 
justify  the  outlay,  and  for  a  number  of  years  he  had 
been  more  persistent  than  any  other  director  in  urg- 
ing an  aggressive  policy  of  expansion  and  improve- 
ment. There  was  no  reason,  therefore,  to  suppose 
that,  in  a  time  of  great  prosperity,  when  the  credit 
of  the  company  was  high,  and  when  other  roads 
were  spertding  large  sums  in  extending  their  mileage 
and  improving  their  facilities,  he  would  suddenly 
become  conservative  and  advocate  a  policy  of  econ- 
omy and  saving. 

The  report  of  the  committee  was  sent  to  Mr.  Har- 
riman in  New  York  where  he  happened  to  be  at  that 
time  lying  ill. 

Two  days  later,  he  wrote  from  his  bed  with  his 
own  hand  the  following  letter  to  A.  G.  Hackstaff ,  the 
secretary  for  the  company  in  Chicago: 


90  E.  H.  HARRIMAN 

4  West  T,^th  Street 
New  York,  January  24,  1890 
A.  G.  Hackstaff,  Esq. 

Secretary  of  the  Illinois  Central  Railroad  Co. 
Dear  Sir  : 

Your  favor  of  the  22nd  inst.  enclosing  printed  copies 
of  the  President's  report  and  action  of  Committee  on 
Rates  Revenues  and  Expenditures  taken  thereon  is  re- 
ceived. I  have  been  too  ill  to  go  over  the  President's 
report  as  carefully  as  I  would  like,  but  I  am  familiar 
enough  with  the  subject  to  be  able  to  form  a  decided 
opinion.  I  do  not  concur  with  the  recommendation  of 
the  Committee  on  Rates,  Revenues,  and  Expenditures, 
and  think  it  would  be  unwise  at  this  time  to  pass  any 
resolution  adopting  a  policy  for  a  large  expenditure  of 
money.  Our  organization  is  not  prepared  for  it,  we 
have  n't  sufficient  information,  and  it  might  lead  to  ex- 
travagance. Our  whole  force  should  be  devoted  to  mak- 
ing and  saving  money.  We  can  make  necessary  improve- 
ments this  year,  during  the  dull  season,  with  the  equip- 
ment we  already  have.  No  large  expenditure  should  be 
made  at  Chicago  until  the  depot  question  has  been  de- 
cided. If  I  were  present  to-day,  I  would  vote  against 
the  adoption  of  [such]  a  policy  as  [that]  recommended 
by  the  Committee  on  Rates,  Revenues,  and  Expendi- 
tures. Please  present  this  to  the  Board  of  Directors. 
Yours  truly 

E.  H.  Harriman 

When  Secretary  Hackstaff  read  this  letter  to  the 
directors,  they  were  more  than  surprised.  Harriman 
had  previously  been  the  most  eagerly  progressive 
man  on  the  board,  and  had  often  urged  going  for- 
ward when  some  of  the  other  members  were  inclined 


ILLINOIS  CENTRAL  AND  ERIE  91 

to  hold  back.  Now,  when  all  were  in  favor  of  expen- 
diture and  expansion,  he  alone  urged  economy  and 
restraint.  It  was  a  change  of  policy  on  his  part  for 
which  no  one  was  prepared.  So  greatly,  however, 
had  the  directors  come  to  rely  upon  the  soundness  of 
his  judgment  that  there  was  little  opposition  to  his 
views,  and  after  a  brief  discussion  the  report  of  the 
Committee  on  Rates,  Revenues,  and  Expenditures 
was  laid  on  the  table  and  the  programme  of  lavish 
expenditure  was  virtually  abandoned. 

The  subsequent  course  of  events  proved  that  Mr. 
Harriman's  judgment  was  right,  but  it  is  hard  to  say 
upon  what  considerations  he  based  it.  To  the  or- 
dinary observer  there  was  nothing  in  the  situation 
that  warranted  apprehension,  or  that  suggested  the 
necessity  for  ''making  and  saving  money."  "Com- 
ing events,"  it  is  said,  "cast  their  shadows  before"; 
but  few  men,  at  that  time,  saw  the  approaching 
financial  panic  of  1893,  and  still  fewer  had  the  wis- 
dom to  prepare  for  it  by  adopting  a  policy  of  econ- 
omy and  retrenchment.  If  the  recommendations  of 
the  Committee  on  Rates,  Revenues,  and  Expendi- 
tures had  been  adopted,  the  financial  resources  of 
the  company  would  have  been  seriously  depleted  at 
the  very  time  when  they  should  have  been  most 
abundant.  Only  a  few  years  later,  the  great  financial 
stonn  of  1893  broke  over  the  country,  sweeping  into 


92  E.  H.  HARRIMAN 

bankruptcy  the  Erie,  the  Baltimore  &  Ohio,  the 
Southern,  the  Reading,  the  Union  Pacific,  the  North- 
ern Pacific,  the  Atchison,  Topeka  &  Santa  Fe,  and 
one  hundred  and  forty-nine  other  railroads,  which 
had  in  the  aggregate  a  capitalization  of  $2,500,000,- 
000.  And  this  great  disaster  came  precisely  at  the 
end  of  the  three-and-one-half-year  period  over  which 
the  special  committee  of  the  Illinois  Central  pro- 
posed to  spread  its  lavish  expenditures  for  better- 
ments and  extensions.  What  the  results  would  have 
been  if  the  committee's  programme  had  been  fol- 
lowed it  is  impossible  to  say;  but  scores  of  other 
roads  in  the  West  and  Middle  West  which  had 
adopted  a  similar  programme  found  themselves, 
when  the  panic  came,  over-extended,  destitute  of 
reserve  funds,  and  unable  even  to  meet  their  fixed 
charges.  Largely  to  Mr.  Harriman's  sagacity  and 
foresight  is  attributable  the  fact  that  the  Illinois 
Central  went  through  the  panic  and  the  years  of 
depression  that  followed  it  not  only  without  embar- 
rassment, but  with  a  great  enhancement  of  its  credit. 
It  paid  its  dividends  regularly,  and  the  only  bond 
issue  that  it  made  ($2,500,000  in  August,  1895)  was 
floated  without  difficulty  at  three  per  cent. 

It  was  about  this  time  that  close  observers  of  the 
Illinois  Central  began  to  give  due  credit  to  the  chair- 
man of  its  finance  committee.   *'  It  was  then  a  well- 


ILLINOIS  CENTRAL  AND  ERIE  93 

known  circumstance  among  bankers,"  says  Mr. 
Kahn,  ''that  the  IlHnois  Central's  finances  were 
managed  ivith  remarkable  skill  and  foresight.  Some- 
how or  other,  it  never  had  bonds  for  sale  except  when 
bonds  were  in  great  demand;  it  never  borrowed 
money  except  when  money  was  cheap  and  abundant; 
periods  of  storm  and  stress  found  it  amply  prepared 
and  fortified;  its  credit  was  of  the  highest.  The  few 
acquainted  with  the  facts  conceded  that  Mr.  Harri- 
man  was  a  shrewd  financial  manager."  ^  The  general 
public  gave  most  of  the  credit  for  this  financial  policy 
to  the  company's  president,  Stuyvesant  Fish,  but  he 
himself  was  generous  enough  to  admit  that  the  pros- 
perity of  the  road  was  largely  due  to  Mr.  Harriman's 
skill  and  foresight.  In  a  speech  that  he  made  at  the 
fiftieth  anniversary  of  the  company  in  Chicago  in 
1901,  Mr.  Fish  said:  ''The  measure  of  success  which 
has  been  achieved  by  the  company  in  the  last  twenty 
years,  with  regard  to  its  finances,  is  due  to  no  man 
more  than  to  the  chairman  of  our  finance  committee, 
Mr.  Harriman."    (Applause.)  ^ 

But  it  was  not  only  for  the  skillful  management  of 
Its  finances  that  the  Illinois  Central  was  indebted  to 
Mr.  Harriman.  His  influence  was  potent  also  in  the 

*  Edward  Henry  Harriman.  An  address  delivered  before  the  P'i- 
nance  Forum  of  New  York  by  Otto  H.  Kahn,  January  25,  191 1. 

2  Memorial  Volume  commemorating  the  fiftieth  anniversary  of  the 
Illinois  Central  Railroad,  1851-1901.   Privately  printed. 


94'  E.  H.  HARRIMAN 

policies  that  extended  its  mileage,  amplified  its  equip- 
ment, and  greatly  increased  the  scope  and  diversity 
of  its  traffic.  He  was  mainly  instrumental  in  the 
purchase  of  the  leased  lines  in  Iowa  and  the  construc- 
tion of  the  link  that  joined  them  to  the  main  stem; 
and  to  him,  largely,  was  due  the  acquirement  of  the 
Louisville,  New  Orleans  &  Texas  with  its  extensive 
mileage,  easy  grades,  and  important  terminals  in 
Memphis  and  New  Orleans.^  Between  1882  and 
1892  —  the  first  decade  of  Mr.  Harriman's  service 
as  director  —  the  Illinois  Central  added  more  than 
1500  miles  to  its  track;  built  or  bought  234  new 
passenger  cars,  274  new  locomotives,  and  8401  new 
freight  cars,  and  increased  its  gross  annual  earnings 
from  $8,905,312  to  $20,095,190.  During  the  same 
period,  moreover,  the  carrying  power  of  its  rolling 
stock  was  more  than  doubled.  In  1883,  its  freight 
cars,  in  the  aggregate,  had  a  capacity  of  only  1 13,000 
tons;  while  in  1891,  they  could  accommodate  more 
than  290,000  tons.  This  great  enlargement  of  trans- 
portation facilities  benefited  the  public  even  more 
than  it  benefited  the  stockholders.  The  dividends  of 
the  latter  were  not  increased,  but  in  the  service  ren- 
dered to  the  farmers,  manufacturers,  and  shippers 
along  the  line  there  was  an  immense  improvement. 

1  This  road  was  absorbed  by  the  Yazoo  &  Mississippi  Valley,  a 
subsidiary  of  the  Illinois  Central,  and  the  united  roads  were  after- 
ward known  as  the  Yazoo  &  Mississippi  Valley. 


ILLINOIS  CENTRAL  AND  ERIE  95 

This  may  be  said  also  of  every  railroad  whose  man- 
agement Mr.  Harriman  influenced  or  controlled. 
He  made  money  for  the  shareholders  if  he  could,  but 
he  never  failed  to  develop  and  improve  the  property, 
so  as  to  make  it  more  serviceable  to  its  patrons.  As 
Mr.  Kahn  has  justly  said:  ^'Whenever  there  was  a 
question  between  increased  results  to  the  shareholder 
and  increased  efficiency  to  the  railroad,  Mr.  Harri- 
man invariably  took  the  latter  course.**  ^ 

If,  however,  Mr.  Harriman  was  useful  to  the  Illi- 
nois Central,  that  road,  in  turn,  was  useful  to  him, 
because  it  afforded  him  an  opportunity  to  learn  the 
practical,  physical  side  of  the  transportation  busi- 
ness. Many  years  later,  when  his  friends  began  to 
talk  of  his  extraordinary  ability  as  a  railway  mana- 
ger, people  who  had  known  him  only  in  the  earlier 
part  of  his  career  exclaimed :  ''Ned  Harriman !  Why, 
I  knew  him,  years  ago,  as  a  little  '  two-dollar*  broker! 
What  should  he  know  about  practical  railroading?'* 
That  he  did  understand  practical  railroading,  how- 
ever, was  a  speedily  demonstrated  fact,  although 
those  who  did  not  closely  observe  his  methods  were 
unable  to  explain  the  apparent  rapidity  with  which 
he  acquired  expert  knowledge.  He  was  not  trained 
in  physical  science,  and  he  made  little  use  of  tech- 
nical books;  but  he  had  what  may  be  called  "the 

1  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  191 1), 
p.  12. 


96  E.  H.  HARRIMAN 

seeing  eye"  and  few  things  escaped  his  attention. 
One  of  his  friends  has  since  explained  his  habit  of 
close  and  attentive  observation  by  saying  that  it  was 
due  to  ** insatiable  curiosity*';  but  it  was  not  "curi- 
osity*' in  the  sense  of  aimless  inquisitiveness.  It  was 
a  keen,  intelligent  interest  in  everything  pertaining 
to  his  work.  In  his  trips  over  the  Illinois  Central  he 
noticed  every  detail  of  railroad  equipment  and  opera- 
tion, from  cars  and  locomotives  to  rails,  ties,  grades, 
curves,  switches,  and  even  water-supply  pipes  and 
track-bolts.  If  he  saw  anything  whose  working  or 
raison  d'etre  he  did  not  fully  understand,  he  made 
inquiries  about  it  among  those  who  knew;  and  no 
statement  or  explanation  satisfied  him  unless  it  went 
to  the  root  of  the  whole  matter.  Then,  having  ac- 
quired the  information  and  stored  it  away  in  his 
extraordinarily  retentive  memory,  he  thought  about 
it  often,  assimilated  it  completely,  and  brought  it 
into  coordinated  relation  with  everything  else  that 
he  knew.  Many  of  the  most  notable  economies  that 
he  afterward  made  in  railway  operation  were  due  to 
this  habit  of  observing  ^nd  considering  even  such 
apparently  trivial  things  as  the  surplus  length  of  a 
track-bolt  projecting  beyond  the  nut,  or  the  unneces- 
sary width  of  the  so-called  "shoulder  of  ballast" 
outside  the  rails.  Taken  separately,  or  for  a  single 
mile,  these  were  things  of  comparatively  little  im- 


ILLINOIS  CENTRAL  AND  ERIE  97 

portance;  but  multiplied  by  the  eight  or  ten  thou- 
sand miles  of  a  great  railroad  system  they  made  up 
a  tremendous  aggregate.  All  these  details  of  physical 
construction  and  operation,  as  well  as  hundreds  of 
others,  Mr.  Harriman  observed,  remembered,  and 
thought  about,  and  the  practical  education  that  he 
thus  acquired  was  perhaps  more  useful  and  fruitful 
than  that  of  many  other  railroad  executives  who  had 
been  trained  to  the  business,  but  who  had  never 
formed  the  habit  of  noticing  details  and  making  them 
a  subject  of  reflection. 

After  Mr.  Harriman  took  up  his  residence  in  Ar- 
den,  he  became  a  ''commuter'*  on  the  Erie  Railroad, 
and  the  affairs  of  that  corporation  soon  began  to 
attract  his  attention.  When  the  Erie  became  bank- 
rupt and  went  into  the  hands  of  a  receiver  in  the 
panic  of  1893,  he  happened  to  be  the  owner  of  a  com- 
paratively small  amount  of  its  second  mortgage  six 
per  cent  bonds.  In  1894,  when  Drexel,  Morgan  & 
Co.  undertook  to  reorganize  the  company,  Harriman 
objected  to  the  reorganization  plan,  first,  because  it 
was  financially  unsound,  and  second,  because  it  in- 
fringed the  rights  of  the  company's  creditors  —  espe- 
cially the  holders  of  its  j  unior  securities.  By  the  terms 
of  the  plan  as  summarized  by  Professor  Daggett, 

no  mortgage  senior  to  the  second  consolidated  mort- 
gage was  to  be  disturbed  save  the  first  mortgage,  which 


98  E.  H.  HARRIMAN 

matured  in  1897.  The  bonds  to  be  dealt  with  were  thus 
reduced  to  $41,481,048,  besides  which  provision  had  to 
be  made  for  the  floating  debt  and  for  future  capital  re- 
quirements. The  plan  proposed  to  authorize  a  blanket 
mortgage  of  $70,000,000  at  five  per  cent,  of  which  $33,- 
597,000  were  to  be  exchanged  at  par  for  the  six  per  cent 
second  consolidated  bonds  and  funded  coupons  thereof; 
$4,031,400  to  be  exchanged  for  the  funded  coupon 
bonds  of  1885,  and  $508,008  for  the  income  bonds.  Of 
the  balance,  $6,512,800  were  to  be  reserved  to  settle 
with  the  old  first  lien  and  collateral  trust  bonds:  $15,- 
915,208  to  supply  capital  requirements  in  the  future, 
and  $9,915,208  to  be  ofi"ered  for  subscription  in  order  to 
pay  the  floating  debt.  The  new  management  did  not  be- 
lieve that  these  last  bonds  could  be  sold  to  advantage 
in  the  general  market,  and  therefore  imposed  as  a  con- 
dition of  the  specified  exchanges  that  holders  of  second 
mortgage,  funded  coupon,  and  income  bonds  should 
subscribe  at  ninety  to  the  extent  of  twenty-five  per  cent 
of  their  holdings.  It  was  hoped  that  the  grant  of  the 
right  of  immediate  foreclosure  upon  default  would  in- 
duce the  holders  of  the  second  mortgage  bonds  to  come 
in.  Both  these  second  mortgage  bonds  and  the  funded 
coupons  of  1885,  it  may  be  remarked,  were  to  be  kept 
alive  and  deposited  with  the  trustee  for  the  protection 
of  the  new  bonds.  Stated  in  tabular  form  the  distribu- 
tion was  to  be  as  follows: 

To  acquire  the  existing  second  mortgage  bonds $33,597,400 

'^o  acquire  the  funded  coupons  of  "1885 4,031,400 

To  acquire  the  income  bonds 508,008 

For  subscription  as  above 9,915,208 

To  acquire  the  old  reorganization  first  lien  and  collateral 

trust  bonds 6,512,800 

To  be  expended  for  construction  equipment,  &c 15,435,184 

$70,000,000  * 

*  Railroad  Reorganization,  by  Stuart  Daggett   (University  Press, 
Cambridge,  1908),  p.  62. 


ILLINOIS  CENTRAL  AND  ERIE  99 

The  effect  of  this  plan  would  be  greatly  to  impair 
the  security  of  the  second  mortgage  bondholders;  to 
lower  their  interest  rate  from  six  to  five  per  cent;  to 
increase  the  annual  fixed  charges  instead  of  lessening 
them;  and,  in  general,  to  make  an  assessment  on  the 
road's  creditors  for  the  benefit  of  its  owners. 

Such  a  plan  could  not  be  expected  to  go  through 
without  opposition.  Some  of  the  leading  bankers  of 
New  York,  who  were  holders  of  the  second  mortgage 
bonds,  including  Mr.  Harriman,  Kuhn,  Loeb  &  Co., 
August  Belmont,  Vermilye  &  Co.,  Hallgarten  &  Co., 
and  Charles  A.  Peabody  (representing  the  Astor  es- 
tate), drew  up  and  sent  to  the  Erie  managers  a  re- 
monstrance in  which  they  said: 

Your  plan  seems  unjust,  inasmuch  as  it  demands  a 
permanent  reduction  of  interest  on  the  bonded  indebt- 
edness for  which  no  adequate  equivalent  is  ofifered,  and 
it  levies  a  forced  contribution  upon  the  bondholders 
through  the  demand  for  a  subscription  to  new  bonds  at 
a  price  considerably  above  their  probable  market  value. 
It  also  proposes  fixed  charges  which  appear  to  be  larger 
than,  in  the  light  of  past  earnings  and  experience,  the 
company  can  carry  with  safety.-^ 

To  this  remonstrance  the  directors  of  the  com- 
pany and  its  bankers  paid  scant  attention,  and  a  lit- 
tle later,  the  bondholders'  protective  committee,  of 
which  Mr.  Harriman  soon  became  the  fighting  head, 

*  Commercial  &  Financial  Chronicle  (1894),  vol.  58,  p.  264. 


100  E.  H.  HARRIMAN 

sent  to  the  directors  a  protest  which  may  be  sum- 
marized thus: 

Our  objections  to  your  plan  are: 

First,  that  by  enlargement  of  the  issue  from  which 
the  bonds  to  be  exchanged  for  ours  are  to  be  taken,  it 
reduces  our  security  by  more  than  one  half. 

Second,  that  no  proper  equivalent  is  offered  for  the 
reduction  of  interest  on  our  bonds. 

Third,  that  the  requirement  to  purchase  new  bonds 
at  more  than  their  value  (being,  in  effect,  an  assess- 
ment on  the  bondholders)  is  an  unjust  and  hitherto 
unheard-of  imposition  by  a  debtor  upon  a  secured 
creditor. 

Fourth,  that  if  an  assessment  may  be  forcibly  de- 
manded by  a  debtor  from  a  secured  creditor  for  the  pur- 
pose of  preserving  the  debtor's  property  and  keeping  it 
in  his  control,  this  plan  does  not  go  far  enough.  The 
contribution  demanded  is  not  sufficient  to  put  the  com- 
pany on  a  sound  and  interest-paying  basis. 

Fifth,  the  plan  calls  for  no  effort  or  sacrifice  on  the 
part  of  the  debtor  company  to  preserve  its  property  and 
redeem  it  from  insolvency. 

Sixth,  the  scheme,  if  successful,  would  establish  a  dan- 
gerous precedent,  which  would  be  a  discredit  to  Ameri- 
can railroad  finance,  because  it  would  violate  the  plain 
obligations  of  a  contract  and  tend  to  increase  distrust  of 
all  American  railroad  securities.  We  also  regard  as  ob- 
jectionable, considering  the  relations  of  the  parties,  the 
language  of  the  circular  of  the  company  and  its  bankers, 
inasmuch  as  it  contains  an  implied  threat  of  punish- 
ment to  those  who  decline  their  proposition,  and  gives 
scant  consideration  to  the  suggestions  made  by  the 
bondholders  for  a  modification  of  the  scheme. 

At  a  meeting  of  the  Erie  stockholders  on  the  6th  of 


ILLINOIS  CENTRAL  AND  ERIE         loi 

March,  1894,  the  plan  of  reorganization  was  ap- 
proved, and  a  Httle  later  in  that  same  week,  Drexel, 
Morgan  &  Co.  gave  notice  that  inasmuch  as  a  major- 
ity of  the  second  mortgage  bondholders  had  turned 
over  their  bonds  to  them,  they  would  proceed  with 
the  reorganization  in  accordance  with  the  plan  an- 
nounced. Most  of  the  holders  of  junior  securities 
then  yielded  and  deposited  their  bonds;  but  Mr. 
Harriman,  who  never  submitted  to  injustice  without 
a  fight,  began  suit  in  the  Supreme  Court  for  an  in- 
junction to  prevent  the  recording  of  the  new  mort- 
gage. Justice  Ingraham,  before  whom  the  case  came, 
did  not  go  fully  into  the  merits  of  the  questions  in- 
volved, but  denied  the  application  for  an  injunction 
on  the  ground  that  the  plaintiffs  represented  only  a 
small  minority  of  the  security-holders.  "While  it  is 
clear,"  he  said,  "that  there  are  certain  obligations 
resting  upon  the  majority  to  refrain  from  infringing 
the  legal  right  of  the  minority,  and  that  a  court  of 
equity  will  enforce  and  protect  the  rights  of  the 
minority,  still,  when  the  holder  of  a  very  small  num- 
ber of  bonds,  or  shares  of  stock,  seeks  to  enjoin  a  very 
large  majority  from  carrying  out  a  plan  such  major- 
ity deem  for  their  benefit,  I  think  the  court  should 
not  interfere  unless  it  plainly  appears  that  some  legal 
right  of  the  minority  is  endangered."  ^ 

*  Railroad  Gazette  (1894),  vol.  26,  p.  472. 


102  E.  H.  HARRIMAN 

Although  Mr.  Harriman  was  thus  virtually  de- 
feated,  he  soon  had  the  satisfaction  of  seeing  his 
contentions  vindicated  and  his  predictions  fulfilled 
by  the  course  of  events.  He  had  warned  the  reor- 
ganizers  that  their  plan  would  not  put  the  Erie  **on 
a  sound  and  interest-paying  basis/'  and  his  warning 
was  almost  immediately  justified.  In  June,  1894,  the 
company  defaulted  on  the  very  first  coupons  of  the 
new  bonds;  in  December,  it  defaulted  again,  and  in  a 
circular  issued  before  the  end  of  the  year  Drexel, 
Morgan  &  Co.  were  forced  to  admit  that  the  plan  of 
reorganization  had  thus  far  proved  to  be  a  failure. 
In  1895,  it  was  abandoned  altogether  and  a  new  and 
very  different  plan  was  substituted  for  it.  In  the 
second  reorganization  most  of  the  objections  raised 
by  Mr.  Harriman  and  his  associates  were  recognized 
and  in  part  met.  The  new  and  final  plan  put  the 
burden  of  readjustment  on  bonds  and  stock  jointly, 
instead  of  on  bonds  alone;  it  lowered  fixed  charges 
instead  of  increasing  them,  and  it  procured  cash  from 
stockholders  instead  of  from  second  mortgage  bond- 
holders.^ 

The  result  of  this  second  conflict  with  Morgan  was 
to  bring  Harriman  into  greater  prominence  in  the 
field  of  railroad  finance  and  to  give  a  number  of  lead- 
ing bankers  a  higher  opinion  of  his  judgment  and 
*  Railroad  Reorganization,  by  Stuart  Daggett,  p.  69. 


ILLINOIS  CENTRAL  AND  ERIE  103 

courage.  On  the  other  hand,  it  deepened  the  dislike 
that  Morgan  had  for  him,  and  excited  in  the  minds 
of  the  Erie  managers  a  feehng  of  hostility  which 
manifested  itself,  on  occasion,  in  various  undignified 
and  petty  ways. 

In  the  fall  of  1895,  for  example,  Harriman  wished 
to  see  one  of  the  races  of  the  trotting  association  at 
Goshen.  He  accidentally  missed  the  Erie  train  that 
he  intended  to  take,  and  there  was  no  other  that 
would  bring  him  to  his  destination  in  time  except  the 
Chicago  express.  Finding  that  this  through  train 
made  no  local  stops,  he  telephoned  to  the  executive 
offices  of  the  Erie  and  asked  if  the  express  might  not 
be  allowed  to  stop  in  Goshen  as  a  personal  accommo- 
dation. Inasmuch  as  he  was  vice-president  of  the  Il- 
linois Central  and  it  was  customary  for  high  railroad 
officials  to  extend  such  courtesies  to  one  another, 
this  was  a  perfectly  natural  and  proper  request;  but 
when  it  was  referred  to  the  highest  authority  it  met 
with  a  curt  refusal.  Mr.  Harriman,  however,  was  a 
hard  man  to  beat.  Learning  upon  inquiry  that  the 
Chicago  express  could  be  flagged  at  Goshen  if  there 
happened  to  be  any  passengers  there  who  wished  to 
go  to  points  west  of  Buffalo,  he  telegraphed  a  friend 
in  Goshen  to  buy  a  ticket  for  Chicago.  Then,  at  the 
appointed  hour,  he  took  his  seat  in  the  express  at 
Jersey  City.  When  the  train  reached  Goshen,  it  was 


104  E.  H.  HARRIMAN 

stopped  by  a  flag-signal  for  the  accommodation  of 
the  non-existent  passenger  for  Chicago,  and  the  Jer- 
sey-City-to-Goshen  passenger  got  off  and  went  to 
the  race.  The  high  officials  of  the  Erie  would  perhaps 
have  treated  Mr.  Harriman  with  more  deference  and 
courtesy  if  they  could  have  foreseen  that  in  the  not 
distant  future  he  would  save  the  Erie  from  another 
bankruptcy  by  putting  up  five  and  a  half  million 
dollars  of  his  own  money.  In  that  case  he  "heaped 
coals  of  fire*'  upon  Mr.  Morgan's  head,  because  the 
Erie,  at  the  time,  was  a  Morgan  road. 

Nothing  in  Mr.  Harriman's  career  is  more  sur- 
prising than  the  readiness  with  which  he  turned 
from  one  big  piece  of  constructive  work  to  another, 
and  the  mingled  boldness  and  sagacity  that  he  dis- 
played in  undertaking  new  and  unfamiliar  enter- 
prises. While  he  was  engaged  in  rebuilding  the  Sodus 
Point  &  Southern  Railroad  in  northern  New  York  in 
1883-84,  he  made  the  acquaintance  of  W.  W.  Webb, 
a  prominent  lawyer  of  Rochester,^  and  employed 
him  to  look  up  and  clear  the  titles  to  certain  parts  of 
the  road's  right  of  way  which  were  unsettled  or  in 
dispute.  Ten  or  twelve  "years  later,  Mr.  Webb, 
who  had  gained  Harriman's  confidence  by  skillful 
accomplishment  of  the  task  assigned  to  him,  hap- 
pened to  be  largely  interested  in  an  iron  mining  cor- 

*  Now  Justice  of  the  Court  of  Claims. 


ILLINOIS  CENTRAL  AND  ERIE         105 

poration  known  as  the  Furnaceville  Iron  Company, 
which  was  situated  fifteen  or  twenty  miles  east  of 
Rochester  near  the  shore  of  Lake  Ontario.  In  1896, 
the  business  of  this  corporation  became  unprofitable, 
and  it  turned  its  attention  to  the  work  which  the 
State  had  then  undertaken  for  the  improvement  of 
the  Erie  Canal.  The  way  in  which  Mr.  Harriman 
was  brought  into  this  work  has  since  been  described 
by  Mr.  Justice  Webb  in  the  following  words:  ^ 

The  particular  business  that  brought  me  into  closer 
relations  with  Mr.  Harriman  grew  out  of  the  contracts 
made  by  the  Furnaceville  Iron  Co.  with  the  State  of 
New  York  for  the  improvement  of  the  Erie  Canal  under 
the  so-called  ''Nine  Million  Dollar  Act"  Prior  to  1896, 
our  company's  mining  operations  had  been  for  some 
time  at  a  standstill.  We  had  a  large  and  expensive 
plant,  consisting  of  cars,  tracks,  engines,  steam  shovels, 
conve^'ors,  etc.,  and  a  force  of  men  who  thoroughly'  un- 
derstood the  work  of  excavation.  When  proposals  were 
invited  by  the  State  for  canal  contracts,  the  question  at 
once  arose,  should  our  company  bid  for  the  work?  I 
spent  a  day  or  two  with  Mr.  Harriman  at  Arden.  After 
a  long  conference,  in  which  I  did  not  participate,  Mr. 
Harriman  asked  me  what  I  thought  of  the  proposition. 
He  had  before  him  the  proposals  for  excavating  and  re- 
building the  Erie  Canal  between  Lockport  and  Roches- 
ter, which  was  divided  up  into  different  contracts,  each 
averaging  about  seven  miles  of  work.  I  believed  that, 
with  our  experience  in  that  line  of  work,  we  could  suc- 

^  "Some  Recollections  of  Edward  H.  Harriman,"  by  Hon.  William 
VV.  Webb,  Justice  of  the  Court  of  Claims.  (An  unpublished  manu- 
script.) 


io6  E.  H.  HARRIMAN 

cessfully  handle  one  or  two  contracts,  if  our  bids  should 
be  accepted.  But  this  was  not  to  Mr.  Harriman's  liking. 
He  would  not  bother  with  one  contract  —  if  we  could 
make  money  on  one  we  could  make  money  on  all  —  and 
if  we  went  into  it,  it  should  be  on  a  broad  scale,  with  the 
idea  of  doing  the  entire  work  between  Lockport  and 
Rochester.  To  him  the  large  sums  required  by  the  State 
as  a  deposit  for  the  performance  of  the  work,  the  assem- 
blage of  the  machinery  and  tools  with  which  to  do  the 
work,  and  the  engagement  of  the  army  of  brain-  and 
brawn- workers,  presented  no  obstacles.  We  put  in  our 
bids,  made  our  cash  deposits,  and  secured  five  contracts 
covering  some  thirty-four  miles  of  work. 

Under  the  regulations  prescribed  by  the  State  author- 
ities, large  amounts  of  money  had  to  be  provided  before 
there  was  any  return.  There  was  never  any  question  or 
any  delay  when  money  was  called  for,  and  from  the  time 
the  bids  were  submitted  until  the  final  settlements  of 
the  contracts,  Mr.  Harriman  gave  his  fullest  confidence 
to  the  men  in  charge  of  the  work.  Our  actual  operations 
extended  from  December,  1897,  until  May,  1898,  when, 
without  a  moment's  warning,  the  State  ofiicials  ordered 
us  to  cease  work,  and  no  more  work  was  done  after  the 
last  mentioned  date. 

It  is  unnecessary  to  detail  the  legislation  and  subse- 
quent litigation  growing  out  of  the  State's  faikire  to 
complete  the  canal.  There  was  an  investigation  directed 
by  the  legislature,  and  various  bills  were  passed,  uni- 
formly in  the  interest  of  the  State,  to  adjust  the  differ- 
ences between  the  contractors  and  the  State  officials. 
Two  successive  Canal  Boards  passed  upon  the  validity 
of  our  claims,  and  endeavored  to  defeat  our  recovery  by 
attacking  the  measurements  and  classification  of  mate- 
rials, and  payments  made  to  us  years  before  by  the  State 
on  the  certificate  of  its  engineers,  inspectors,  and  agents. 
Meantime  the  manager  of  our  company  had  died  and 


ILLINOIS  CENTRAL  AND  ERIE         107 

the  engineering  force  had  been  widely  scattered.  We 
had  to  look  up  our  witnesses  —  one  from  the  coal  mines 
of  Kentucky,  one  from  northern  Canada,  and  one  from 
the  far  \\  est  —  and  bring  them  on  at  our  own  expense 
and  at  large  cost,  no  part  of  which  was  ever  repaid  by 
the  State. 

Had  it  not  been  for  Mr.  Harriman's  entire  loyalty  to 
the  interests  of  the  Furnace ville  Iron  Co.  and  his  per- 
fect confidence  in  the  ultimate  outcome,  either  before 
the  State  officials  themselves,  or  otherwise  in  the  courts, 
our  company,  like  many  others,  would  have  been  bank- 
rupt; but  he  never  wavered  a  moment,  or  limited  in  any 
way  the  plans  submitted  to  him  for  a  complete  investi- 
gation of  our  entire  work  and  all  of  our  transactions. 
After  years  of  litigation  the  State  paid  us  upward  of 
$100,000. 

While  Mr.  Harriman  had  but  little  personal  acquaint- 
ance with  the  actual  work  under  our  contracts,  I  was 
necessarily  brought  into  close  relations  with  him  in  the 
proceedings  to  collect  our  dues  from  the  State,  mostly 
because  of  the  death  of  the  manager  of  our  company 
and  the  dissolution  of  our  working  corps.  His  grasp  of 
the  situation  was  such  that  apparently  he  could  take  up 
a  conversation  at  a  point  where  it  had  ceased  months 
before,  and  his  knowledge  of  the  details  of  the  legisla- 
tion, litigation,  and  conferences  was  as  fresh  in  his  recol- 
lection as  if  they  had  only  that  moment  been  brought  to 
his  attention. 

In  every  interview  I  had  with  him  on  the  subject  I 
was  amazed  at  the  clearness  of  his  intellectual  vision, 
his  wonderful  memory,  even  on  unimportant  details, 
and  at  the  rapidity  and  correctness  of  his  conclusions. 

Some  time  after  the  payment  of  the  award  which  we 
obtained  from  the  State,  an  attack  was  made  during  a 
political  campaign  upon  the  State  officials  and  pretty 
much  everybody  connected  with  the  Canal  Board  and 


To8  E.  H.  HARRIMAN 

the  canal  work,  including  our  company.  While,  as  it 
turned  out,  the  attack  did  not  amount  to  anything  more 
than  swearing  at  the  court,  nevertheless  Mr.  Harriman 
was  a  good  deal  disturbed  at  the  time,  being  fearful  of 
the  effect  upon  the  fortunes  of  the  political  party  with 
which  he  was  affiliated.  At  his  request  I  prepared  a  syn- 
opsis of  the  experiences  and  trials  which  our  company 
had  had  with  the  State  of  New  York,  which  was  greatly 
to  his  liking,  and  which,  he  felt,  satisfactorily  disposed 
of  the  charges  made  by  unscrupulous  newspapers  and 
politicians. 

In  the  autobiography  of  a  distinguished  naval  officer 
reference  is  made  to  the  necessary  isolation  of  a  ship's 
commander  when  on  sea  duty,  except  on  matters  imme- 
diately connected  with  the  business  in  hand.  I  fre- 
quently drew  a  parallel  between  such  a  one  and  Mr. 
Harriman.  From  the  nature  of  his  business  conditions 
he  was,  aside  from  his  domestic  life,  a  self-contained 
man,  and  one  necessarily  limited  in  his  friendships,  but 
his  confidence,  once  given,  was  implicit;  when  lost,  it 
was  gone  forever;  and  he  had  no  patience  with  any  one, 
high  or  low,  who  had  evaded  an  obligation,  or  betrayed 
a  confidence.  By  common  consent  of  those  who  knew 
him  best  and  longest  he  was  a  very  extraordinary  man 
■ —  to  me  the  brightest  mind  I  ever  encountered. 

In  this  little-known  episode  of  Mr.  Harriman 's 
earlier  career  may  be  seen  some  of  the  characteristics 
that  were  to  make  him  famous  in  a  wider  field  in 
later  years,  namely,  courage,  persistence,  clearness 
of  intellectual  vision,  retentiveness  of  memory,  and 
natural  taste  as  well  as  natural  capacity  for  con- 
structive work  on  a  large  scale. 


CHAPTER  V 
THE  REORGANIZATION  OF  THE  UNION  PACIFIC 

UP  to  the  year  1897,  Mr.  Harriman's  great  abil- 
ity as  a  financier,  and  his  constructive  genius 
as  a  railroad  executive,  had  not  been  generally  recog- 
nized. His  skillful  management  of  the  finances  of 
the  Illinois  Central,  and  his  victory  over  J.  P.  Mor- 
gan in  the  struggle  for  the  possession  of  the  Dubuque 
&  Sioux  City  Railroad  in  1887  had  attracted  the 
attention  of  New  York  bankers,  but  to  the  public 
generally  he  was  known  only  as  a  shrewd  and  suc- 
cessful Wall  Street  broker.  Even  in  the  affairs  of  the 
Illinois  Central  his  reputation  had  been  overshad- 
owed to  some  extent  by  that  of  the  president,  Stuy- 
vesant  Fish,  and  comparatively  few  people  were 
aware  that  by  long  and  intensive  study  of  transpor- 
tation problems  he  had  already  gained  a  thorough 
and  accurate  knowledge  of  the  technical,  as  well  as 
the  financial,  side  of  railway  administration.  The 
fact  that  he  was  well  equipped  for  almost  any  great 
enterprise  in  the  transportation  field  was  known  to 
his  associates  in  the  management  of  the  Illinois  Cen- 
tral, but  it  had  not  yet  become  known  to  the  pub- 
lic at  large,  and  no  opportunity  to  demonstrate  his 


no  E.  H.  HARRIMAN 

great  ability  was  afforded  him  until  after  the  Union 
Pacific  Railroad  went  into  bankruptcy  in  the  panic 
of  1893. 

The  causes  that  brought  about  the  insolvency  of 
this  great  corporation  are  so  well  known  that  a  de- 
tailed review  of  them  is  hardly  necessary.  The  most 
important  of  them  were  excessive  initial  cost  due  to 
rapid  construction  and  high  prices  for  materials; 
wasteful  if  not  dishonest  building  contracts  with  the 
notorious  Credit  Mobilier,  and,  at  a  later  time,  in- 
judicious acquirement  of  competing  but  unprofitable 
lines,  which  added  largely  to  the  company's  capital- 
ization without  increasing  its  net  revenue. 

The  Union  Pacific  and  the  Central  Pacific  Rail- 
road Companies  were  created  by  an  Act  of  Congress 
in  1862  for  the  purpose  of  connecting  California  with 
the  Eastern  States  by  means  of  a  transcontinental 
line.  The  Union  Pacific  was  authorized  to  build 
westward  from  Omaha,  and  the  Central  Pacific  east- 
ward from  Sacramento,  until  they  should  form  a 
junction  at  or  near  the  boundary  line  of  Nevada.  In 
order  to  encourage  the  enterprise,  the  Government 
not  only  granted  to  the  companies  twenty-five  thou- 
sand square  miles  or  more  of  public  land,  in  alternate 
sections  along  the  route,  but  issued  and  turned  over 
to  them  a  series  of  thirty-year  six  per  cent  bonds, 
which  they  were  allowed  to  sell  as  a  means  of  getting 


REORGANIZATION  OF  UNION  PACIFIC     iii 

construction  capital.  As  security  for  the  money  thus 
loaned,  the  United  States  (by  the  Act  of  1864)  took 
a  second  mortgage  on  the  roads,  allowing  the  com- 
panies to  sell  their  own  bonds  and  to  secure  them  by 
a  first  mortgage  equal  in  amount  to  the  Govern- 
ment's second  mortgage.  The  United  States  ex- 
pected the  companies  to  pay  the  interest  and  princi- 
pal of  the  loan  by  setting  aside  for  that  purpose  five 
per  cent  of  their  net  earnings,  and  by  carrying  the 
Government  mails,  troops  and  military  supplies. 
Under  this  arrangement  the  Union  Pacific  Company 
received  $27,236,512  in  Government  bonds  and 
11,309,884  acres  of  public  land. 

Construction  work  began  on  the  Central  Pacific  at 
Sacramento  in  1864,  and  on  the  Union  Pacific  at 
Omaha  in  1865,  and  was  pushed  with  great  energy 
by  an  army  of  laborers,  which,  at  the  time  of  greatest 
activity,  numbered  about  twenty-five  thousand  men. 
On  the  1st  of  January,  1867,  the  termini  of  the  two 
roads  were  1376  miles  apart,  but  in  less  than  two 
years  the  gap  was  reduced  to  seven  hundred  miles, 
and  on  the  loth  of  May,  1869,  the  construction  par- 
ties of  the  two  companies  met  at  Promontory  Point, 
in  Utah,  and  the  last  spike  in  the  great  transcon- 
tinental line  was  driven.  The  Central  Pacific  had 
built  689  miles  across  the  Sierra  Nevada  Mountains 
from  Sacramento,  and  the  Union  Pacific  1086  miles 


1,12  E.  H.  HARRIMAN 

across  the  plains,  the  Black  Hills,  and  the  Rocky 
Mountains  from  Omaha.  A  junction  was  formed  at 
Ogden,  and  the  whole  line  was  put  in  operation  on 
the  15th  of  July,  1869.  The  cost  of  the  Union  Pacific, 
as  stated  in  the  construction  account  contained  in 
the  balance  sheet  of  1870,  was  $97,273,549,  but  the 
actual  cost  to  the  contractors  was  probably  not  more 
than  half  that  sum,  as  the  latter  were  paid  in  stock 
and  bonds  which  went  into  the  capital  account  at 
par  value  while  they  were  taken  by  the  contractors 
at  a  much  lower  market  value.  The  capitalization 
of  the  company,  therefore,  at  the  very  outset,  greatly 
exceeded  the  actual  construction  cost  of  the  road, 
the  difference  representing  the  profit  of  the  contrac- 
tors and  the  discount  on  the  securities  that  they  took 
in  payment.^ 

The  earnings  of  the  Union  Pacific,  in  the  earlier 
years  of  its  existence,  were  comparatively  small,  for 
the  reason  that  it  ran  through  an  almost  uninhabited 
country.  At  the  time  when  its  construction  was 
authorized,  there  were  practically  no  settlements 
between  Omaha  and  the  Rocky  Mountains  except  a 
few  mining  camps  in  Colorado;  and  although  the  tide 

^  For  various  estimates  of  the  construction  cost  and  the  profits  of 
the  contractors  see  Report  of  the  U.S.  Pacific  Railway  Commission, 
Senate  Exec.  Doc.  No.  51,  50th  Congress,  ist  Session,  pp.  51-52  et  seq.; 
also  The  Union  Pacific  Railway,  by  John  P.  Davis,  p.  174;  and  The 
Building  and  Cost  of  the  Union  Pacific,  by  Henry  Kirke  White  (in  Rail' 
way  Problems,  by  W.  Z.  Ripley,  pp.  95-97). 


REORGANIZATION  OF  UNION  PACIFIC     113 

of  emigration  began  to  flow  westward  as  soon  as  the 
road  was  opened,  the  earnings  from  traffic  were  not 
large  enough  to  justify  the  payment  of  a  dividend 
until  1875.  From  that  time  until  1880  the  company 
was  fairly  prosperous  and  paid  its  shareholders  from 
five  and  one  half  to  eight  per  cent  per  annum.  Mean- 
while, however,  it  was  beginning  to  suffer  from  the 
competition  of  the  Kansas  Pacific  —  a  nearly  paral- 
lel line  of  638  miles  running  westward  from  Kansas 
City  to  Denver.  This  road,  poorly  built  and  badly 
managed,  had  never  been  profitable,  and  in  1874  ^^ 
had  become  insolvent  and  had  gone  into  the  hands 
of  a  receiver.  In  1878,  Jay  Gould  and  a  group  of  his 
associates  obtained  control  of  it  (and  of  its  subsidiary 
branch,  the  Denver  Pacific),  by  purchasing  a  major- 
ity of  its  stock.  The  Union  Pacific  was  then  forced 
to  meet  the  competition  of  a  bankrupt  road,  which 
had  no  interest  charges  to  pay  and  which  was  able  to 
cut  rates  almost  to  the  bare  cost  of  operation.  In 
1879,  Gould  proposed  to  the  Union  Pacific  a  con- 
solidation of  the  Union,  Kansas,  and  Denver  Pacific 
roads,  in  which  the  shares  of  the  respective  com- 
panies should  be  treated  as  if  they  had  equal  value. 
The  terms  of  this  proposition,  as  a  well-known  writer 
on  the  subject  has  said, 

were  absurd.  .  .  .  The  Union  Pacific  had  reported  an  an- 
nual surplus,  the  other  roads  an  annual  deficit;  the 


114  E.  H.  HARRIMAN 

Union  Pacific  had  not  defaulted,  the  Kansas  and  Den- 
ver Pacific  had  done  little  else ;  the  highest  mark  which 
the  stock  of  the  Kansas  Pacific  had  touched,  in  Janu- 
ary, 1879,  had  been  13,  that  of  the  Union  Pacific  68^. 
But  the  question,  as  Gould  well  knew,  was  not  one  of 
productive,  but  of  destructive  capacity;  and  the  means 
of  coercion  which  he  employed  was  a  demonstration  of 
the  ease  with  which  the  Kansas  Pacific  could  be  made 
formidable  as  a  competing  line. 

In  November,  1879,  Mr.  Gould  purchased  the  Mis- 
souri Pacific,  from  Kansas  City  to  St.  Louis,  and  an- 
nounced his  intention  of  extending  the  Kansas  Pacific  to 
Salt  Lake  City,  there  to  connect  with  the  Central  Pa- 
cific and  to  form  a  third  transcontinental  route.  .  .  .  The 
result  was  the  consent  of  the  Union  Pacific  directors  to 
the  terms  imposed,  and  the  execution  of  an  agreement 
dated  January  14,  1880,  whereby  the  Union  and  the 
Kansas  Pacific,  with  all  their  respective  assets  and  lia- 
bilities, were  put  together  at  par  of  their  respective  cap- 
itals ...  to  which  was  added  the  capital  of  the  Denver 
Pacific.^ 

By  virtue  of  this  consolidation  the  mileage  of  the 
Union  Pacific  was  nearly  doubled;  but  its  financial 
strength  was  very  much  weakened,  for  the  reason 
that  the  absorption  of  two  unprofitable  lines  resulted 
in  a  large  increase  of  capitalization  without  any 
commensurate  increase  in  earning  capacity.  The 
Union  Pacific  had  freed  itself  from  competition,  but 
at  too  high  a  cost,  and  its  subsequent  embarrassment 
and  final  insolvency  were  largely  due  to  this  taking 

*  Railroad  Reorganization:  The  Union  Pacific,  by  Stuart  Daggett 
(Cambridge,  1898),  pp.  228-29. 


REORGANIZATION  OF  UNION  PACIFIC     115 

in  of  the  Gould  roads  at  far  more  than  their  actual 
value. ^ 

Between  1880  and  1890,  the  mileage  of  the  Union 
Pacific  was  further  increased  by  the  construction  of 
the  Oregon  Short  Line  and  the  purchase  of  the  Ore- 
gon Railroad  &  Navigation  Company.  These  exten- 
sions, however,  were  profitable,  for  the  reason  that 
they  opened  up  revenue-producing  territory  and 
gave  the  Union  Pacific  an  outlet  on  the  Pacific  Coast 
at  Portland. 

Between  1884  and  1890,  under  the  presidency  of 
Charles  Francis  Adams,  the  Union  Pacific  acquired 
more  than  three  thousand  miles  of  branch  lines,  all 

*  According  to  the  report  of  the  U.S.  Pacific  Railway  Commission 
of  1888,  the  average  annual  earnings  of  the  three  roads  for  a  period  of 
ten  years  prior  to  the  consolidation  were  as  follows: 

Annual  net  earn-  Annual  interest 

ings  per  mile  charges  per  mile 

Union  Pacific $5617  $3185 

Kansas  Pacific 1602  2295 

Denver  Pacific 1333  1750 

This  table  shows  an  annual  surplus  of  $2432  per  mile  for  the  Union 
Pacific,  and  an  annual  deficit  of  $693  per  mile  for  the  Kansas  Pacific, 
and  $417  per  mile  for  the  Denver  Pacific.  The  same  report  also  states 
that  as  a  result  of  the  consolidation,  the  total  indebtedness  of  the  Union 
Pacific  was  increased  by  the  sum  of  $57,950,925,  including  $14,000, 
000  in  stock  and  $38,346,761  in  bonds.  Obviously  the  consolidation 
was  detrimental  to  the  interests  of  the  solvent  and  surplus-earning 
road  and  profitable  to  the  shareholders  of  the  two  bankrupt  corpora- 
tions. The  merger  seems  to  have  been  forced  by  the  threat  of  trans- 
continental competition,  which,  if  made  effective,  would  be  likely,  as 
Mr.  Gould  himself  admitted  on  the  witness  stand,  to  "destroy  the 
Union  Pacific."  {Report  of  the  U.S.  Pacific  Railway  Commission,  Sen- 
ate Doc.  No.  51,  50th  Congress,  ist  Session.) 


ii6  E.  H.  HARRIMAN 

under  separate  organizations,  but  with  their  ac- 
counts and  management  subject  to  the  supervision 
and  control  of  the  parent  company.  These  branch 
lines  cost  the  Union  Pacific  nearly  $42,000,000. 
Most  of  them  reported  annual  deficits,  which  were 
covered  out  of  earnings  of  the  main  line,  or  carried 
as  floating  debt;  but  President  Adams  justified  the 
acquisition  of  them  on  the  ground  that,  by  acting  as 
feeders,  they  added  to  the  revenue  of  the  main  line 
at  least  $5,000,000  a  year.  Without  their  help,  he 
said,  the  company  would  not  have  been  able  to  meet 
even  its  fixed  charges.^ 

Between  1880  and  1890,  the  financial  condition  of 
the  road,  notwithstanding  the  able  management  of 
President  Adams,  grew  worse  rather  than  better, 
owing  partly  to  the  inability  of  the  company  to  fund 
the  floating  debt  created  in  large  part  by  extensions 
and  purchases  of  branch  lines;  partly  to  diminished 
freight  receipts  from  the  transportation  of  an  in- 
creased quantity  of  low-grade  commodities,  and 
partly  to  intensified  competition  for  transconti- 
nental business.^   As  a  result  of  these  unfavorable 

*  This  statement  was  confirmea  by  the  testimony  of  witnesses  ex- 
amined by  the  U.S.  Pacific  Railway  Commission  of  1888.  The  report 
of  the  Commission  characterized  the  administration  of  President 
Adams  as  honest,  intelHgent,  and  skillful. 

2  In  explaining  this  competition,  the  president  said,  in  his  annual 
report  for  1884:  "Not  only  has  the  Rio  Grande  been  completed  to  Og- 
den,  making,  in  connection  with  the  Atchison,  Topeka  &  Santa  F6 


REORGANIZATION  OF  UNION  PACIFIC    117 

conditions,  the  average  receipts  per  ton-mile  de- 
creased about  forty-five  per  cent,  and  the  net  earn- 
ings in  1889  were  $3,000,000  less  than  they  had  been 
eight  years  before.  In  1892,  after  the  resignation  of 
President  Adams,  the  position  of  the  road  became  a 
very  difficult  one.  *'Its  capitalization  was  high;  its 
net  earnings  had  shown  hardly  any  increase  in  five 
years ;  it  had  to  prepare  to  raise  a  large  sum  of  money 
in  two  years  for  the  payment  of  its  short-time 
notes";  and,  in  addition,  there  was  ahead  of  it  the 
repayment  of  the  Government  loan,  which  would 
begin  to  mature  in  1895,  and  would  amount,  with 
interest,  to  about  $53,000,000. 

Such  was  the  condition  of  the  Union  Pacific  when 
there  came  upon  the  country  the  great  financial 
panic  of  1893,  in  which  six  mortgage  companies, 
thirteen  loan  and  trust  companies,  and  five  hundred 
and  fifty-four  banks  failed,  and  one  hundred  and 
fifty-six  railroads,  with  a  capitalization  of  $2,500,000, 
000,  went  into  the  hands  of  receivers.  If  this  great 
national  calamity  had  not  occurred,  the  Union  Pa- 
cific Company  might  perhaps  have  struggled  along, 
in  spite  of  its  increasing  difficulties;  but  it  was  in  no 

and  the  B.  &  M.  extension  of  the  Chicago,  Burlington  &  Quincy,  a 
direct  competing  line  with  the  Union  Pacific  from  Chicago  and  all 
eastern  points  to  a  common  western  terminus,  but  the  Northern  Pa- 
cific has  been  connected  through,  making  a  third  transcontinental 
route." 


ii8  E.  H.  HARRIMAN 

condition  to  stand  such  a  financial  cyclone  as  this 
In  the  first  eight  months  of  the  panic  year  its  net 
revenue  fell  off  $2,500,000,  and  in  the  next  four 
months  it  would  have  to  meet  a  maturing  indebted- 
ness of  about  $5,100,000.^  This,  in  the  existing  state 
of  the  money  market,  it  could  not  possibly  do,  and 
in  October,  1893,  it  went  into  the  hands  of  receivers. 
A  month  or  six  weeks  later,  at  a  conference  held  in 
New  York,  the  company's  security-holders,  of  va- 
rious classes,  appointed  a  reorganization  committee 
consisting  of  Senator  Brice,  chairman;  A.  H.  Boisse- 
vain.  General  Dodge,  Major  H.  L.  Higginson,  and 
a  representative  of  the  estate  of  F.  L.  Ames.  This 
committee,  to  which  J.  Pierpont  Morgan  was  sub- 
sequently added,  struggled  for  two  years  to  reconcile 
conflicting  interests  and  agree  upon  a  plan  of  reor- 
ganization; but  Congress  would  not  consent  to  any 
suggested  refunding  of  the  Government  debt,  and  in 
March,  1895,  the  committee  abandoned  its  task  and 
returned  to  the  owners  the  securities  that  had  been 
placed  in  its  hands.  The  Union  Pacific  system,  mean- 
while, had  been  slowly  disintegrating,  partly  through 
the  efforts  of  the  receivers  to  get  rid  of  unprofitable 
branches,  and  partly  through  the  action  of  bond- 
holders of  subsidiary  roads  who  were  impatient  of 

*  Mr.  John  F.  Dillon,  counsel  for  the  company,  stated  that  there 
would  be  a  deficit  for  the  year  1893  of  at  least  $3,000,000,  and  that  the 
company  was  ** without  money  or  means"  to  meet  its  obligations. 


REORGANIZATION  OF  UNION  PACIFIC     119 

delay  and  insisted  on  immediate  foreclosure  of  their 
liens.  One  branch  or  extension  after  another  was 
lopped  off  in  this  way  until,  in  May,  1895,  the  mile- 
age of  the  parent  company  had  been  reduced  from 
8167  to  4469,  and  was  about  to  be  still  further 
curtailed  by  proceedings  in  bankruptcy  against  the 
Oregon  Short  Line  and  other  important  parts  of  the 
system.^ 

Such  was  the  state  of  affairs  when,  in  1895,  the 
Union  Pacific  —  or  what  was  left  of  it  —  fell  into 
the  hands  of  new  and  strong  financial  interests.  In 
the  late  fall  of  that  year,  Winslow  S.  Pierce,  personal 
counsel  of  George  J.  Gould,  approached  Mr.  Jacob 
H.  Schiff  with  a  proposition  that  the  reorganization 
of  the  company  be  undertaken  by  Kuhn,  Loeb  & 
Co.  ''But,"  objected  Mr.  Schiff,  "that  is  J.  P.  Mor- 
gan's affair;  I  don't  want  to  interfere  with  anything 
that  he  is  trying  to  do."  Mr.  Pierce  replied  that  the 
Brice  committee,  of  which  Mr.  Morgan  was  a  mem- 
ber, had  abandoned  the  task  as  hopeless,  and  that  it 
would  greatly  please  large  interests  in  the  Union 
Pacific  if  Mr.  Schiff  would  undertake  the  work,  with 
his  banking  house  as  financial  manager.  Kuhn,  Loeb 


*  Among  the  branch  roads  or  extensions  lost  prior  to  May,  1895, 
were  the  Fort  Worth  &  Denver  City,  the  Denver,  Leadville  &  Gunni- 
son, the  St.  Joseph  &  Grand  Island,  and  the  Leavenworth,  Topeka  & 
Southwestern.  The  Oregon  Short  Line  and  the  Union  Pacific,  Denver 
&  Gulf  were  separately  reorganized  at  a  somewhat  later  time. 


120  E.  H.  HARRIMAN 

&  Co.  had  never  been  particularly  interested  in  the 
Union  Pacific,  but  Mr.  Schiff  was  much  impressed 
by  the  data  concerning  it  that  Mr.  Pierce  laid  before 
him  and  promised  that  he  would  consult  his  partners 
and  take  the  matter  into  consideration.  A  few  days 
later  he  called  upon  J.  P.  Morgan,  apprised  him  of 
the  Pierce  proposition,  and  asked  whether  accept- 
ance of  it  would  interfere  with  any  of  his  plans.  Mr. 
Morgan  declared  emphatically  that  he  was  through 
with  the  Union  Pacific  and  wanted  nothing  more  to 
do  with  it.  So  far  as  he  was  concerned,  he  said,  Mr. 
Schiff  was  at  liberty  to  go  ahead  and  do  whatever  he 
liked.  He  (Morgan)  would  give  Kuhn,  Loeb  &  Co. 
what  help  he  could,  but  he  was  so  disgusted  with  the 
political  intriguing  and  wire-pulling  which  had  de- 
feated the  Brice  committee's  plans  in  Congress,  and 
so  unfavorably  impressed  by  the  outlook  for  reor- 
ganization in  general,  that  he  was  not  willing  even  to 
take  a  financial  participation  for  his  firm.^ 

^  Mr.  Morgan's  failure  to  take  advantage  of  his  opportunity  to  re- 
organize the  Union  Pacific  is  regarded  as  one  of  the  chief  tactical  mis- 
takes of  his  life.  He  thought  that  the  road  had  no  future,  and  that  it 
was  less  valuable  than  the  Erie.  Mr.  Harriman,  on  the  contrary,  with 
characteristic  imagination  and  judgment,  had  a  clear  prevision  of  its 
possibilities,  and  when  its  common  stock  was  selling  below  25  he  said 
to  Mr.  Otto  H.  Kahn :  "  Union  Pacific  is  intrinsically  worth  as  much  as 
St.  Paul,  and  with  good  management  it  will  get  there."  This  seemed 
to  Mr.  Kahn  "the  wildest  kind  of  wild  talk,"  and  he  did  not  at  first 
take  the  prediction  seriously;  but  in  less  than  ten  years  Union  Pacific 
was  paying  ten  per  cent  dividends;  the  stock  was  selling  at  nearly  200, 
and  It  had  left  St.  Paul  far  behind.    These  results,  however,  were 


REORGANIZATION  OF  UNION  PACIFIC     121 

Knowing  that  the  Union  Pacific  was  regarded  with 
disfavor  by  capitaHsts  and  investors,  Mr.  Schiff  de- 
cided to  interest  in  the  reorganization  an  entirely 
new  set  of  men,  whose  positions  and  abiHties  would 
be  likely  to  inspire  the  public  with  confidence.  He 
therefore  went  to  Marvin  Hughitt,  president  of  the 
Chicago  &  Northwestern  Railroad,  and  asked  him 
to  take  an  interest  in  the  enterprise.  Mr.  Hughitt 
was  reluctant  to  do  this  at  first,  but  after  a  good  deal 
of  persuasion  he  finally  consented  to  serve  on  the 
reorganization  committee.  Through  his  friend.  Gen- 
eral Louis  Fitzgerald,  Mr.  SchifT  then  secured  the 
cooperation  of  Chauncey  M.  Depew,  president  of 
the  New  York  Central.  As  Hughitt  and  Depew  were 
both  known  as  "  Vanderbilt  men,"  bankers  and  bro- 
kers in  Wall  Street  jumped  to  the  conclusion  that  it 
was  to  be  a  Vanderbilt  reorganization.  *'The  New 
York  Central,"  they  said,  "will  acquire  both  the 
Northwestern  and  the  Union  Pacific  and  thus  get  a 
through  line  to  the  Pacific  Coast."  Such  rumors  and 
conjectures  did  not  trouble  Mr.  SchifT,  because  they 
served  a  useful  purpose  in  attracting  attention  and 
exciting  public  interest.   Late  in  1895,  General  Fitz- 

largely  if  not  wholly  due  to  the  "good  management"  of  a  bom  rail- 
road builder  and  executive.  Mr.  Morgan,  with  all  his  great  financial 
ability,  might  not  have  been  able  to  make  the  Union  Pacific  what  John 
W.  Gates  said  it  was  in  1901  —  "the  most  magnificent  railroad  prop- 
erty in  the  world." 


122  E.  H.  HARRIMAN 

gerald,  Oliver  Ames,  a  director  of  the  Union  Pacific, 
and  T.  Jefferson  Coolidge,  Jr.,  of  the  Old  Colony 
Trust  Company  of  Boston,  joined  Messrs.  Schiff, 
Hughitt,  and  Depew,  and  the  committee,  with  Gen- 
eral Fitzgerald  as  chairman,  took  up  the  heavy  bur- 
den of  the  bankrupt  road's  debts  and  liabilities. 

For  a  time  the  work  of  reorganization  proceeded 
satisfactorily;  but  in  the  latter  part  of  1896,  Mr. 
Schiff  and  his  associates  became  conscious  that  some 
secret  but  powerful  influence  was  working  against 
them.  Their  plans  were  opposed  in  the  Pacific  Roads 
Commission  and  in  Congress;  a  large  part  of  the 
press  was  hostile  to  them;  objections  were  raised  and 
difficulties  created  by  many  holders  of  the  old  stock, 
and  evidences  of  antagonism  were  apparent  in  the 
financial  circles  of  both  America  and  Europe.  The 
public  soon  noticed  that  the  reorganization  commit- 
tee was  encountering  obstacles,  and  a  rumor  became 
current  that  they  were  thrown  in  its  way  by  J.  P. 
Morgan.  He  was  jealous,  it  was  said,  of  the  success- 
ful progress  thus  far  made  by  the  committee,  and 
wished  now  to  get  control  of  the  reorganization  him- 
self. Thinking  that  there  might  be  some  basis  for 
this  rumor,  Mr.  Schiff  called  on  Morgan  and  asked 
him  frankly  if  he  had  changed  his  mind  about  Union 
Pacific  and  if  he  now  wished  to  take  an  interest  in 
the  reorganization.  Mr.  Morgan  replied  in  the  nega- 


REORGANIZATION  OF  UNION  PACIFIC     123 

tive.  He  had  not  changed  his  views,  he  said,  and  he 
did  not  care  to  have  anything  more  to  do  with  the 
road.  Mr.  Schiff  then  explained  to  him  that  the  com- 
mittee was  meeting  with  serious  opposition,  and 
asked  if  he  knew  what  influences  were  behind  it. 
Mr.  Morgan  repHed  that  he  did  not  know,  but  that 
he  would  investigate  quietly  and  try  to  find  out.  He 
did  not  care,  he  said,  to  be  further  associated  with 
Union  Pacific  affairs  himself,  but  he  would  gladly 
help  Kuhn,  Loeb  &  Co.  in  any  way  that  he  could. 

A  few  weeks  later,  Mr.  Morgan  sent  for  Mr.  Schiff 
and  said  that  he  believed  he  had  ascertained  the 
source  of  the  opposition  to  the  committee's  plans. 
"It's  that  little  fellow  Harriman,"  said  Morgan, 
"and  you  want  to  look  out  for  him.'* 

Mr.  Schiff 's  personal  acquaintance  with  Mr.  Har- 
riman was  comparatively  slight.  He  knew  that  the 
latter  was  the  financial  manager  of  the  Illinois  Cen- 
tral ;  and  that  he  was  generally  regarded  as  a  shrewd 
and  resolute  man ;  but  beyond  this  his  knowledge  did 
not  go.  He  could  think  of  no  good  reason  for  opposi- 
tion to  the  committee's  plans  on  the  part  of  the  Illi- 
nois Central,  and  he  determined  to  put  the  matter 
squarely  before  Harriman  and  find  out  what  he, 
individually,  was  trying  to  do.  He  therefore  ar- 
ranged an  interview  with  him  and  said  to  him  frankly : 
"Mr.  Harriman,  my  associates  and  I,  as  you  doubt- 


124  E.  H.  HARRIMAN 

less  know,  are  trying  to  reorganize  the  Union  Pacific. 
For  a  long  time  we  have  been  making  good  progress; 
but  now  we  are  meeting  everywhere  with  opposition, 
and  I  understand  that  this  opposition  is  being  di- 
rected by  you.   What  have  you  to  say  about  it?*' 

"I  am  the  man,**  repHed  Mr.  Harriman. 

"But  why  are  you  doing  it?'*  asked  Mr.  Schiff. 

''Because  I  intend  to  reorganize  the  Union  Pacific 
myself.*' 

This  was  somewhat  surprising,  but  Mr.  Schiff 
merely  smiled  and  said:  "How  do  you  propose  to  do 
it,  Mr.  Harriman?  Most  of  the  securities  of  the  com- 
pany are  in  our  possession.  What  means  have  you  of 
reorganizing  the  Union  Pacific?** 

"The  Illinois  Central  ought  to  have  that  road,*' 
replied  Mr.  Harriman,  "and  we  are  going  to  take 
charge  of  the  reorganization.  We  have  the  best 
credit  in  the  country.  I  am  going  to  issue  $100,000, 
000  in  three  per  cent  bonds  of  the  Illinois  Central 
Railroad  Company  and  am  going  to  get  close  to  par 
for  them.  You,  at  the  best,  can't  get  money  for  less 
than  four-and-a-half  per  cent.  In  that  respect  I  am 
stronger  than  you  are.**  ^ 

*  There  is  some  reason  to  believe  that  Mr.  Harriman's  original  in- 
tention (approved  perhaps  by  President  Fish)  was  to  unite  the  Illinois 
Central  and  the  Union  Pacific,  and  that  his  opposition  to  the  Fitz- 
gerald-SchifT  plan  of  reorganization  was  based  on  a  fear  that  it  would 
shut  the  Illinois  Central  out  and  give  controlling  influence  to  the  New 
York  Central  and  the  Chicago  &  Northwestern,  whose  presidents 


REORGANIZATION  OF  UNION  PACIFIC     125 

Mr.  Schlff  was  amazed  at  the  confident  boldness 
of  these  assertions,  but  he  merely  replied:  "You'll 
have  a  good  time  doing  it,  Mr.  Harriman;  but, 
meanwhile,  what  is  your  price?" 

"There  is  no  price,"  replied  Harriman.  "I  am 
determined  to  get  possession  of  the  road." 

Mr.  Schiff  then  asked  if  there  were  no  terms  on 
which  all  parties  could  come  together  and  work  in 
harmony. 

"If  you'll  make  me  chairman  of  the  executive 
committee  of  the  reorganized  road,"  said  Harriman, 
"  I  '11  consider  the  expediencv  of  joining  forces  with 
you." 

"That  is  out  of  the  question,"  replied  the  banker. 
"It  has  been  decided  that  Mr.  Pierce  shall  be  chair- 
man and  I  think  he  deserves  the  place." 

"Very  well,  Mr.  Schiff,"  said  Harriman.  "Go 
ahead  and  see  what  you  can  do.   Good-day." 

After  this  interview  the  opposition  to  the  reor- 
ganization plan  of  the  Fitzgerald-SchifT  committee 
grew  stronger  rather  than  weaker.  Stuyvesant  Fish, 
president  of  the  Illinois  Central,  attacked  it  vigor- 
were  prominent  members  of  the  reorganization  committee.  After  he 
became  a  director  of  the  Union  Pacific,  Mr.  Harriman  seems  to  have 
abandoned  the  idea  of  consolidating  it  with  the  Illinois  Central  — 
possibly  because  the  stockholders  of  the  latter  had  little  faith  in  the 
future  of  the  Union  Pacific  and  were  not  willing  to  run  the  risk  of  com- 
bining with  it  and  taking  its  chances  of  success.  (See  E.  II.  Harriman 
and  the  Union  Pacific  Railroad,  by  Alexander  Millar,  New  York,  1910, 
p.  5-) 


126  E.  H.  HARRIMAN 

ously  in  a  speech  before  the  Pacific  Roads  Commis- 
sion in  Washington,  and  all  the  influences  that  he 
and  his  railroad  company  could  control  were  ar- 
rayed against  it.  Realizing,  at  last,  that  Mr.  Harri- 
man  was  not  a  man  to  be  ignored  or  pushed  aside, 
Mr.  Schiff  decided  to  propose  a  compromise.  It 
would  be  better,  he  thought,  in  the  interest  of  a 
prompt  and  successful  reorganization,  to  secure  Mr. 
Harriman's  cooperation  than  to  work  at  cross-pur- 
poses with  him.  He  therefore  brought  about  another 
interview,  in  the  course  of  which  he  explained  more 
fully  the  circumstances  that  seemed  to  make  neces- 
sary the  election  of  Winslow  S.  Pierce  as  first  chair- 
man of  the  executive  committee.  The  latter,  Mr. 
Schiff  said,  had  been  instrumental  in  bringing  the 
business  to  Kuhn,  Loeb  &  Co.  in  the  first  place,  and 
he  was  supported,  moreover,  by  powerful  Union 
Pacific  interests  which  were  more  or  less  hostile  to 
Mr.  Harriman.  "However,"  said  Mr.  SchifT,  "if  you 
will  cooperate  with  us,  I  '11  see  that  you  are  made  a 
director  of  the  reorganized  company  and  a  member 
of  the  executive  committee.  Then,  if  you  prove  to  be 
the  strongest  man  in  that  committee,  you'll  prob- 
ably get  the  chairmanship  in  the  end." 

"All  right,"  said  Harriman,  "I'm  with  you." 
He  then  joined  the  syndicate  and  took  a  "partici- 
pation" to  the  amount  of  $900,000. 


REORGANIZATION  OF  UNION  PACIFIC     127 

Owing  chiefly  to  embarrassments  and  difliculties 
growing  out  of  the  indebtedness  of  the  Union  Pacific 
to  the  Government,  the  progress  of  the  reorganiza- 
tion committee  was  slow;  but  before  the  end  of  1896 
a  plan  was  agreed  upon  which  met  the  approval  of 
nearly  all  the  security-holders,  and  early  in  1897  ar- 
ticles of  incorporation  for  a  new  company  were  filed.  ^ 

Foreclosure  proceedings  had  long  been  under  way, 
and  in  January,  1897,  the  Government  agreed  to 
join  in  them  provided  the  committee  would  guaran- 
tee a  bid,  at  the  forced  sale,  of  a  sum  equal  at  least 
to  the  amount  of  the  original  Government  bonds 
with  interest  at  three  and  one-half  per  cent.  This  the 
committee  consented  to  do,  but  when  the  decrees  of 
the  courts  in  the  foreclosure  proceedings  were  made 
public,  the  Government  was  dissatisfied  with  them 
and  put  in  additional  claims  amounting  in  the  ag- 
gregate to  about  $8,000,000.  Further  negotiations 
delayed  the  final  sale  until  November  2,  1897,  when 
the  financing  syndicate,  headed  by  Kuhn,  Loeb  & 

*  "The  plan  of  reorganization  was  a  strong  one.  It  reduced  fixed 
charges  from  over  $7,000,000  to  under  $4,000,000,  with  an  eventual 
lower  limit  of  $3,000,000,  and  this  amount  such  good  authorities  as 
Messrs.  Mink  and  Clark  pronounced  the  road  safely  able  to  earn,  in 
spite  of  the  reduction  of  its  mileage.  ...  It  gave  to  each  class  of  secur- 
ities a  claim  to  interest  strictly  proportional  to  the  earning  capacity  of 
the  road,  and  added  to  this  a  preferred  stock  on  which  no  payment 
was  to  be  paid  unless  earned ;  while  it  provided  for  a  liberal  assessment 
upon  stockholders  and  attempted  no  funding  of  the  current  liabilities 
incurred  during  the  past  troubled  years."  (Railroad  Reorganization: 
The  Union  Pacific,  by  Stuart  Daggett,  pp.  252-54.) 


128  E.  H.  HARRIMAN 

Co.,  bought  the  road,  paying  the  Government  debt 
in  full  with  interest  to  date  of  purchase,  and  agree- 
ing, furthermore,  to  buy  up  all  the  bonds  secured  by 
the  first  mortgage  which  amounted  to  $27,637,436 
more.  Thus  the  syndicate,  when  it  acquired  the 
property,  assumed  liabilities  amounting  in  the  ag- 
gregate to  more  than  $81,000,000.^  For  this  sum 
the  purchasers  received  only  the  main  stem  of  the 
Union  Pacific  extending  from  Omaha  to  Ogden.  All 
the  rest  of  the  old  system,  including  the  Kansas 
Pacific,  Denver  Pacific,  Oregon  Short  Line,  and 
Union  Pacific,  Denver  &  Gulf,  had  already  been  lost 
or  were  about  to  be  lost,  through  the  foreclosure  of 
other  mortgages. 

*  U.S.  2d  mortgage  bonds  with  interest $40,253,605 

Union  Pacific  ist  mortgage  bonds 27,637,435 

Securities  in  sinking  fund  brought  by  committee. . . .    13,645,250 
Total $81,536,290 

The  sum  received  by  the  Government,  in  full  satisfaction  of  its 
claims,  was  $58,448,223,  as  follows: 

U.S.  2d  mortgage  bonds  with  interest $40,253,605 

Securities  in  sinking  fund  sold  to  committee 13,645,250 

Cash  in  sinking  fund,  taken  over 4.549>368 

Total $58,448,223 

{Commercial  &  Financial  Chronicle,  January  15,  1898.) 

This  settlement  was  very  advantageous  to  the  United  States.  The 
Government  had  loaned  to  the  company  in  bonds  only  $27,236,512, 
and  it  had  not  only  got  this  sum  back,  with  interest  in  full,  but  had 
saved  in  the  thirty  years  almost  or  quite  as  much  more  through  the 
economies  secured  in  the  transportation  of  mails,  troops,  supplies,  etc., 
by  rail  instead  of  by  wagon. 


REORGANIZATION  OF  UNION  PACIFIC     129 

The  risking  of  more  than  $81,000,000  in  the  pur- 
chase of  the  main  line  of  the  Union  Pacific  was  one 
of  the  most  daring  financial  undertakings  of  that 
time.  The  road  was  not  in  good  physical  condition, 
nor  was  it  properly  equipped.  It  had  lost  its  through 
connection  to  the  Pacific,  as  well  as  all  of  its  branches 
in  Kansas  and  Nebraska,  and  the  whole  of  the  ter- 
ritory through  which  it  ran  was  still  suffering  from 
the  business  depression  that  followed  the  disastrous 
panic  of  1893.  So  seriously  did  Mr.  Schiff  regard  the 
enterprise  upon  which  he  and  his  associates  had  em- 
barked that,  on  his  first  visit  to  Omaha  after  the 
purchase  of  the  road,  he  spent  the  greater  part  of 
one  night  pacing  the  floor  in  his  hotel  room,  debating 
anxiously  with  himself  the  question  whether  Kuhn, 
Loeb  &  Co.,  as  financial  managers  for  the  reorganiza- 
tion committee,  had  not  undertaken  more  than  they 
could  successfully  carry  through.  Mr.  Harriman,  on 
the  contrary,  felt  no  anxiet>^  and  had  no  misgivings. 
His  faith  in  the  future  growth  and  prosperity  of  the 
Great  West  was  unbounded,  and  he  intended  to 
reconstruct  and  reequip  the  Union  Pacific  so  com- 
pletely that  when  better  times  should  come,  it  would 
be  prepared  to  handle  cheaply  and  profitably  the 
immense  volume  of  traffic  that  he  could  already 
foresee. 

On  the  6th  of  December.  1897,  when  the  new 


130  E.  H.  HARRIMAN 

Union  Pacific  Company  perfected  its  organization, 
Mr.  Harriman  was  chosen  a  director  and  shortly 
afterward  a  member  of  the  executive  committee,  in 
accordance  with  the  promise  that  Mr.  Schiff  had 
made  to  him.^  But  he  did  not  at  first  play  any  im- 
portant part,  for  the  reason  that  he  was  little  known 
to  his  new  associates  and  was  regarded  by  some  of 
them  with  distrust. 

Almost  all  the  members  of  the  board  had  been  pre- 
viously connected  with  the  Union  Pacific,  either  through 
old  affiliations,  or  through  membership  in  the  reorgani- 
zation committee.  Mr.  Harriman  was  a  newcomer,  and 
by  several  members  of  the  board  his  advent  was  not  re- 
garded with  friendly  eyes.  He  was  looked  at  askance, 
somewhat  in  the  light  of  an  intruder.  His  ways  and 
manners  jarred  upon  several  of  his  new  colleagues,  and 
he  was  considered  by  some  as  not  quite  belonging  in 
their  class,  from  the  point  of  view  of  position,  financial 
standing,  and  achievements.  ^ 

Mr.  Harriman,  however,  paid  little  attention  to 
this,  if,  in  fact,  he  noticed  it.  He  was  intent  on  learn- 

*  The  other  members  of  the  executive  committee  were  Winslow  S. 
Pierce  {ex-officio  chairman),  Marvin  Hughitt  (president  of  the  Chicago 
&  Northwestern),  James  Stillman  (president  of  the  National  City 
Bank),  and  Otto  H.  Kahn  (of  Kuhn,  Loeb  &  Co.). 

2  Edward  Henry  Harriman,  by  Otto  H.  Kahn.  Mr.  Kahn  was  a 
young  man  of  briUiant  talents  who,  after  studying  banking  in  Ger- 
many, had  six  or  seven  years  of  training  and  experience  in  the  London 
branch  of  the  Deutsche  Bank  and  in  the  firm  of  Speyer  &  Co.  of  New 
York.  He  became  a  partner  in  the  banking  house  of  Kuhn,  Loeb  &  Co. 
in  1897,  and  was  a  member  of  the  first  board  of  directors  of  the  reor- 
ganized Union  Pacific  Company.  He  soon  became  one  of  Mr.  Harri- 
nian's  warmest  friends  and  staunchest  supporters. 


REORGANIZATION  OF  UNION  PACIFIC     131 

ing  the  exact  condition  of  the  property  for  which  he 
had  become  in  part  responsible,  and  he  devoted  most 
of  the  winter  of  1897-98  to  an  intensive  study  of  it. 
This  necessitated  frequent  requests  for  information 
from  the  men  on  the  ground,  and  in  commenting 
upon  such  requests,  Mr.  J.  B.  Berry,  who  was  then 
chief  engineer  of  the  road,  says: 

It  was  apparent  to  a  number  of  us  connected  with  the 
Union  Pacific  that,  even  prior  to  Mr.  Harriman's  elec- 
tion as  chairman  of  the  executive  committee,  in  the 
spring  of  1898,  there  was  a  new  man  at  the  head  of  af- 
fairs. He  was  constantly  making  inquiries  about  the 
staff  and  the  condition  of  the  road,  and  was  evidently 
making  up  his  mind  as  to  what  it  would  be  best  to  do.-^ 

In  the  early  part  of  1898,  a  number  of  Union  Pa- 
cific directors  and  officials  made  a  trip  over  the  main 
line,  for  the  purpose  of  ascertaining  the  condition 
and  needs  of  the  road.  Mr.  Harriman,  who  was  a 
member  of  the  party,  had  already  begun  to  attract 
attention  in  the  West,  and  was  fast  acquiring  reputa- 
tion in  his  new  environment  as  a  man  of  exceptional 
knowledge  and  ability.  The  impression  that  he  made 
upon  some  of  the  employees  of  the  road  is  described 
by  Mr.  W.  L.  Park,  then  division  superintendent  at 
North  Platte,  Nebraska,  in  the  following  words: 

The  advent  of  the  Harriman  regime  on  the  Union 

*  "Notes  on  Association  with  E.  H.  Harriman,"  by  J.  B.  Berry, 
chief  engineer  of  the  Union  Pacific    (An  unpublished  manuscript.) 


132  E.  H.  HARRIMAN 

Pacific,  February  ist,  1898,  was  a  matter  of  no  small 
concern  to  the  employees  and  officials.  It  was  not  known 
generally  what  interest  had  purchased  the  road,  or  who 
would  dictate  its  policies.  Then  along  came  a  party  of 
financial  people,  who  were  escorted  over  the  road  by  the 
general  officers  and  shown  the  physical  characteristics 
of  the  property.  I  heard  the  General  Manager  remark 
to  the  Superintendent  of  Machinery,  Mr.  J.  H.  McCon- 
nell,  ''Joe,  did  you  notice  that  dark-complected  man 
with  glasses  who  seemed  to  know  so  much  about  scrap, 
and  a  great  deal  about  things  in  general?  Well,  that's 
the  man  who  is  going  to  have  a  good  deal  to  say  about 
this  railroad." 

"Do  you  think  so?"  inquired  the  Superintendent  of 
Machinery  in  rather  a  doubtful  manner.  "What's  his 
name?" 

"That's  Ned  Harriman  —  used  to  be  on  the  Illinois 
Central  at  Chicago.  He's  a  comer!  They  all  defer  to 
him,  and  he  knows  nearly  as  much  about  the  property 
as  I  do,  already;  except  the  financial  end,  and  of  that 
he  knows  all  and  I  know  very  little."^ 

If  Mr.  Harriman  already  knew  almost  as  much 
about  the  Union  Pacific  as  its  general  manager  did, 
it  was  only  because  he  had  already  spent  months  in 
the  study  of  it,  with  a  view  to  its  complete  recon- 
struction and  reequipment  under  his  own  direction. 

It  was  about  this  time,  or  a  little  later,  that  Mr. 
Harriman  laid  the  foundation  of  his  great  fortune  by 
investing  largely  in  Union  Pacific  stock.  His  ability 

*  "Personal  Recollections  of  E.  H.  Harriman,"  by  W.  L.  Park,  di- 
vision superintendent  of  the  Union  Pacific  at  North  Platte,  Nebraska, 
from  1890  to  1900.   (An  unpublished  manuscript.) 


REORGANIZATION  OF  UNION  PACIFIC     133 

to  take  a  "participation"  to  the  amount  of  $900,000 
in  the  financing  syndicate  shows  that  he  was  already 
a  man  of  means;  but  judged  by  the  standards  of  the 
time,  he  was  not  yet  a  man  of  great  wealth.  It  was 
the  Union  Pacific  that  ultimately  enriched  him,  and 
when,  in  1898,  he  began  to  buy  its  stock,  he  was 
counting  on  his  own  ability  to  make  immensely 
valuable  a  property  which  was  then  worth  compara- 
tively little.  Speaking  of  these  early  investments, 
Mr.  Otto  H.  Kahn  says: 

He  caused  his  associates  to  wonder  and  doubt,  by 
buying  all  of  the  Union  Pacific  common  that  he  could 
accumulate  up  to  the  price  of  25  or  thereabouts.  He 
must  have  acquired  many  thousands  of  shares,  for  the 
stock  had  long  been  selling  freely  between  15  and  20.  It 
was  considered  to  have  but  very  little  intrinsic  value, 
and  there  were  no  dividends  in  sight  for  the  preferred, 
much  less  for  the  common  stock.  I  recollect  an  influen- 
tial financial  personage  saying  to  me  about  these  pur- 
chases, which  at  the  time  attracted  a  good  deal  of  com- 
ment, '*  You  see  the  man  is  essentially  a  speculator.  He 
is  putting  everything  he  has,  and  more,  into  Union  Pa- 
cific common  and  preferred  at  these  prices.  He  will 
come  to  grief  yet."  ^ 

Mr.  Harriman,  however,  was  not  speculating,  in 
the  proper,  or  even  the  popular,  sense  of  that  word. 
When  a  capitalist  buys  a  run-down  farm,  on  the 
chance  that  it  may  appreciate  in  value  with  the  in- 

^  Edward  Henry  Harriman^  by  Otto  H.  Kahn  (New  York,  191 1),  pp. 
14-15. 


134  E.  H.  HARRIMAN 

crease  of  population,  he  is  truly  a  speculator.  He 
does  not  work  the  farm,  and  if  it  happens  to  double 
in  value  as  the  result  of  some  fortuitous  circumstance 
—  the  building  of  a  railroad  or  a  scarcity  of  farm 
products  —  he  has  not  earned  the  profit  that  he 
takes.  Such  is  not  the  case  when  an  agricultural 
expert  buys  a  worn-out  farm,  works  it  himself,  puts 
into  it  his  knowledge  and  skill,  as  well  as  his  labor, 
and  eventually  doubles  its  value  by  fertilization  and 
intensive  cultivation.  He  does  not  then  take  a  profit 
without  earning  it,  as  does  the  hypothetical  capital- 
ist; he  rightfully  takes  possession  of  value  that  he  has 
himself  created.  When  Mr.  Harriman  invested  his 
money  in  a  worn-out  railroad,  he  expected  to  earn, 
by  personal  labor  and  skill,  the  profit  that  he  an- 
ticipated —  and  he  did  earn  it.  No  one  now  ques- 
tions the  fact  that  he  was  virtually  the  creator  of  the 
reorganized  Union  Pacific;  and  if  he  made  millions 
out  of  it,  he  added,  at  the  same  time,  hundreds  of 
millions  to  the  value  of  the  property  of  other  men, 
and  widened  immensely  the  area  of  human  happiness 
and  prosperity. 

It  has  sometimes  been  said,  in  disparagement  of 
Mr.  Harriman's  achievement,  that  the  ultimate 
success  of  the  Union  Pacific  was  wholly  due  to  the 
growth  and  development  of  the  territory  that  it 
served.   "  Harriman  did  n't  create  the  Great  West/' 


REORGANIZATION  OF  UNION  PACIFIC     135 

said  W.  B.  Thompson  in  an  argument  before  the 
United  States  Industrial  Commission.  "God  Al- 
mighty did  that.*'  This  is  the  argument  of  the  Rus- 
sian peasant  who  begrudged  the  ten  kopeks  that  he 
had  to  pay  for  a  teakettleful  of  hot  water.  "God 
made  the  water,"  he  declared,  "and  he  gives  it 
freely  to  everybody." 

"Yes,  my  little  brother,"  replied  the  dispenser  of 
the  aqueous  fluid,  "God  made  the  water,  but  he 
did  n't  make  it  hot;  if  you  want  God's  water,  go  to 
the  river  and  fill  your  old  teakettle." 

The  same  reply  may  be  made  to  Mr.  Thompson. 
God  created  the  Great  West,  but  he  did  n't  make  it 
accessible.  Railroad-builders  did  that  and  for  that 
railroad-builders  should  have  all  the  credit.  It  is 
undoubtedly  true,  as  Mr.  Kahn  has  said,  that  "the 
growth  and  prosperity  of  the  Union  Pacific  was  de- 
pendent upon  the  growth  and  prosperity  of  the  ter- 
ritory that  it  served,  but  such  growth  and  prosperity 
were  universal  throughout  the  country  west  of  the 
Missouri  River  and  their  benefits  were  available  to 
all  other  Western  railroads  to  the  same  extent  as  to 
the  Union  Pacific.  Yet  there  is  not  a  single  line  that 
comes  near  to  equaling  the  record  made  by  the 
Union  Pacific,  and  it  is  the  uniqueness  of  the  Union 
Pacific's  attainments,  considering  not  only  the  finan- 
cial results  to  the  stockholders,  but  also  the  standard 


136  E.  H.  HARRIMAN 

of  efficiency,  service  to  the  public,  physical  condition, 
and  financial  strength  of  resources,  which  measures 
the  uniqueness  of  Mr.  Harriman's  genius."^ 

What  his  own  profits  were  from  the  investments 
that  he  made  in  1898  can  only  be  conjectured;  but 
the  well-known  financial  expert,  John  Moody,  has 
figured  that  the  man  who  bought  one  hundred  shares 
of  Union  Pacific  common  in  1898  for  $1600  received 
on  it,  in  dividends  and  increased  value,  in  eight  and 
a  half  years,  $21,900,  and  was  then  receiving  sixty- 
three  per  cent  on  his  original  investment.^ 

Most  of  Mr.  Harriman's  great  fortune  was  made 
out  of  the  increase  in  value  of  the  properties  that  he 
managed,  and  in  part  owned;  but  the  value  was  put 
into  those  properties  by  unremitcing  labor  and  by 
the  exercise  of  the  rare  mental  powers  and  capacities 
which  in  the  business  world  always  gain  the  high 
rewards.  Mr.  Harriman's  attitude  toward  money 
will  be  considered  elsewhere;  but  as  it  was  at  this 
time  in  his  life  that  he  began  to  accumulate  wealth 
rapidly,  it  seems  proper  to  say  that  in  investing  in 
Union  Pacific  stock  he  was  not  speculating  on  an 
uncertainty,  but  was  anticipating  the  natural  and 
legitimate  results  of  work  for  which  he  knew  he  had 
a  peculiar  fitness. 

*  Edward  Henry  riarrtman,hy  OttoH.Kahn  (New  York,  T9ii),p.i2. 

*  "The  Growth  of  the  Harriman  Lines,"  by  John  Moody,  McClure's 
Magazine,  October,  1906,  p.  546. 


REORGANIZATION  OF  UNION  PACIFIC     137 

On  the  1st  of  January,  1898,  the  Union  Pacific  was 
turned  over  by  the  receivers  to  the  reorganized  com- 
pany, and  the  latter  began  at  once  to  operate  it,  with 
Horace  G.  Burt  as  president;  OHver  W.  Mink,  vice- 
president;  Alexander  Millar,  secretary;  Edward 
Dickinson,  general  manager;  and  Winslow  S.  Pierce, 
chairman  of  the  board  of  directors  and  of  the  execu- 
tive committee.^ 

In  the  course  of  the  next  three  months,  the  new 
Union  Pacific  Company  reacquired  the  Kansas  Pa- 
cific, Denver  Pacific,  and  the  Julesburg  branch  of  the 
Union  Pacific,  Denver  &  Gulf,  and  made  plans  for 
getting  control  again  of  the  Oregon  Short  Line,  the 
Oregon  Railroad  &  Navigation  Company,  and  other 
important  parts  of  the  old  system.  Mr.  Harriman,  as 
a  director,  favored  all  these  measures  and  plans,  and 
in  the  discussion  of  them  showed  so  much  accurate 
knowledge  and  shrewd  judgment  as  greatly  to  impress 
even  those  of  his  associates  who  had  at  first  doubted 

*  Mr.  Burt  was  an  engineer  by  profession,  and  prior  to  his  election 
as  president  of  the  Union  Pacific  he  had  been  third  vice-president  and 
traffic  manager  of  the  Chicago  &  Northwestern  Railroad  at  Chicago. 
Messrs.  Millar,  Dickinson,  and  Mink  had  all  been  connected  with  the 
old  company  —  Millar  as  secretary,  Dickinson  as  general  manager, 
and  Mink  as  controller  and  afterward  one  of  the  receivers.  Mr. 
Pierce  was  a  corporation  lawyer  and  had  acted  in  the  capacity  of  gen- 
eral counsel,  or  general  attorney,  for  several  Western  railroads,  includ- 
ing the  Missouri  Pacific,  Texas  &  Pacific,  and  St.  Louis  Southwestern. 
He  was  the  personal  representative  of  George  J.  Gould,  who,  at  that 
time,  was  interested  in  the  Union  Pacific  as  well  as  the  Missouri 
Pacific 


138  E.  H.  HARRIMAN 

his  ability.  Mr.  Schiff,  in  particular,  became  con- 
vinced that  in  bringing  about  the  election  of  Mr. 
Harriman  as  a  director  he  had  "  builded  better  than 
he  knew/'  and  had  given  to  the  board  a  man  of  ex- 
ceptional knowledge,  boldness,  and  power.  The  by- 
laws of  the  reorganized  company  provided  that  the 
chairman  of  the  board  of  directors  should  be,  ex 
officio,  chairman  also  of  the  executive  committee; 
but  when,  in  the  spring  of  1898,  it  became  apparent 
that  Mr.  Harriman  was  preeminently  qualified  for  'I 

leadership,  it  was  decided  to  amend  the  by-laws  so 
as  to  make  a  place  for  him  by  empowering  the  com- 
mittee to  choose  a  presiding  officer  for  itself.  Early 
in  May,  1898,  when  this  had   been  accomplished,  j 

Mr.  Harriman  was  elected  chairman  and   took  his  " 

seat  as  chief  executive  officer  of  the  board.  Thus  was  , 

fulfilled  the  half  promise,  half  prediction  made  by  f 

Mr.  Schiff  in  1897  that  if  Mr.  Harriman  should 
"prove  to  be  the  strongest  man  in  the  committee," 
he  would  "probably  get  the  chairmanship  in  the 
end." 


CHAPTER  VI 

RECONSTRUCTION  AND  REEQUIPMENT  OF 
THE  UNION  PACIFIC 

MR.  HARRIMAN'S  first  step,  after  he  became 
chairman  of  the  executive  committee  of  the 
Union  Pacific,  was  thoroughly  characteristic  of  the 
man  and  his  methods.  He  had  already  made  a  care- 
ful study  of  the  road,  and  was  better  acquainted, 
perhaps,  with  its  condition  and  needs  than  were  any 
of  his  associates  on  the  board  of  directors;  but  in 
order  to  verify  his  information  and  perfect  his  knowl- 
edge he  determined  to  go  personally,  by  daylight, 
over  the  whole  line  from  the  Missouri  River  to  the 
Pacific  Coast,  and  make  a  thorough  examination  of 
it  from  an  observation  car.  Early  in  the  summer  of 
1898,  with  his  two  older  daughters,  Mary  and  Cor- 
nelia, he  went  to  Omaha,  and  there  ordered  a  special 
train  made  up  with  an  observation  car  in  front  and  a 
locomotive  in  the  rear.  Then,  accompanied  by  Pres- 
ident Burt,  Chief  Engineer  Berry,  and  a  few  other 
high  officials  of  the  road,  he  started  for  the  Pacific 
Coast,  sitting  in  the  front  of  the  observation  car  and 
taking  note  of  grades,  curves,  rails,  ballast,  etc.,  as 
the  locomolive  in  the  rear  pushed  the  train  west- 
ward across  the  plains. 


140  E.  H.  HARRIMAN 

Traveling  only  in  the  daytime,  and  stopping  at  all 
important  stations  to  question  officials,  investigate 
conditions,  and  gather  information,  the  new  chair- 
man of  the  executive  committee  made  a  slower  trip 
from  Omaha  to  Portland,  perhaps,  than  had  ever 
been  made  before  by  a  high  railroad  official;  but  in 
the  weeks  that  the  journey  occupied  he  became 
thoroughly  acquainted  with  the  physical  condition 
of  the  road,  estimated  the  value  of  its  equipment, 
interviewed  the  shippers  who  made  use  of  it,  judged 
the  characters  of  the  officials  locally  in  charge  of  it, 
and  not  only  devised  plans  for  its  immediate  im- 
provement, but,  in  many  cases,  put  such  plans  into 
operation  without  waiting  for  the  approval  of  the 
executive  committee.  He  determined,  for  example, 
to  retire  as  soon  as  possible  most  of  the  light  rolling 
stock ;  and  in  order  to  prevent  useless  expenditure  of 
money  in  repairing  it,  he  directed  that  not  more 
than  ten  dollars  be  spent  in  putting  any  single  car 
in  order.  He  also  directed  the  removal  of  the  sides 
and  roofs  of  old  box  cars,  in  order  that  they  might  be 
used  as  flatcars  in  ballasting  the  track.  They  were 
too  small  and  light  for  freight  traffic  and  he  in- 
tended to  substitute  for  them  cars  of  much  greater 
capacity.^    These  measures  he  took  on  his  own  per- 

*  "Recollections of  E.  H.  Harriman  in  Connection  with  the  Union 
Pacific,"  by  W.  L.  Park,  division  superintendent  at  North  Platte, 
Nebraska.   (An  unpublished  manuscript.) 


RECONSTRUCTION  OF  UNION  PACIFIC     141 

sonal  responsibility,  merely  for  the  purpose  of  saving 
time  and  money.  In  his  examination  of  the  road  and 
its  equipment,  nothing  escaped  his  attention.  One 
of  the  division  superintendents  afterward  declared, 
with  pardonable  exaggeration,  "He  saw  every  poor 
tie,  blistered  rail,  and  loose  bolt  on  my  division." 
He  even  noticed  and  made  inquiries  about  such 
comparatively  unimportant  matters  as  the  diameter 
of  water-tank  service  pipes,  the  quality  of  water 
furnished  to  engines,  and  the  effect  of  unsuitable 
water  on  the  casing  of  locomotive  fire-boxes.  His 
w4de  knowledge,  keenness  of  observation,  and  quick- 
ness of  decision  made  a  deep  impression  upon  the 
minds  of  railway  officials  who  had  never  before  seen 
him.  Mr.  W.  H.  Bancroft,  general  manager  of  the 
Oregon  Short  Line  says: 

As  I  now  recall  it,  I  first  met  Mr.  Harriman  in  1898, 
when  he  made  his  first  trip  of  inspection  over  the  Union 
Pacific,  the  Oregon  Short  Line,  and  the  other  roads 
with  which  his  name  has  been  so  familiarly  associated. 
Before  he  became  chairman  of  the  executive  committee 
of  the  Union  Pacific,  I  had  known  little  about  him,  even 
by  reputation;  but  his  election  to  that  position  natur- 
ally aroused  interest  in  his  personality.  I  had  imagined 
a  man  larger  in  stature  than  I  found  him  to  be,  but,  al- 
though somewhat  below  the  average  size,  he  impressed 
me  as  a  man  of  unusual  ability,  with  a  wonderful  grasp 
of  affairs,  full  of  energy,  and  apparently  of  physical 
strength.  At  that  time  he  was  about  fifty  years  of  age, 
but  he  did  not  look  it.   I  should  have  said  that  he  was 


142  E.  H.  HARRIMAN 

between  forty  and  forty-five.  The  things  that  impressed 
me  as  most  remarkable  in  his  character  were  his  general 
knowledge  of  the  properties  with  which  he  had  become 
so  recently  associated,  and  his  rapid  observation  of  all 
matters  of  detail.  His  view  of  larger  and  broader  ques- 
tions also  was  that  which  a  man  ought  to  have  if  he  is 
to  exercise  supervisory  powers  and  to  direct  the  devel- 
opment and  management  of  great  railroad  properties. 
He  approached  every  question  with  a  directness  and 
thoroughness  which  enabled  him  to  master  all  the 
phases  of  it  in  the  least  possible  time.  It  was  often  dif- 
ficult, even  for  an  experienced  employee,  to  answer  di- 
rectly and  promptly  his  pertinent  and  far-reaching  in- 
quiries. A  man  might  be  acquainted  in  a  general  way 
with  the  data  and  information  that  he  was  called  upon 
to  furnish,  but  he  might  not  have  arranged  the  facts 
systematically  enough  in  his  mind  to  make  a  compen- 
dious presentation  of  them.  Mr.  Harriman's  grasp  of 
affairs,  and  his  desire  for  full  information  in  condensed 
form,  constituted  a  lesson  to  me  and  to  those  associated 
with  me.  We  learned  to  systematize  and  condense  our 
information  and  to  present  it  to  him,  at  subsequent 
meetings,  approximately  in  the  brief  and  comprehensive 
form  that  his  methods  seemed  to  require.  It  was  this 
that  enabled  him  to  deal  successfully  with  the  multi- 
tude of  great  questions  presented  to  him. 

His  manner,  at  first,  seemed  to  me  brusque;  but  this 
was  an  erroneous  impression,  for  I  soon  found  that  it 
was  only  his  thorough  way  of  transacting  business.  If 
the  information  given  him  with  regard  to  any  matter 
seemed  satisfactory  to  his  mind,  he  disposed  of  the  larg- 
est questions  with  great  rapidity  and,  as  the  results 
showed,  with  the  greatest  wisdom.  If,  on  the  other 
hand,  the  facts  laid  before  him  were  insufficient,  a  per- 
tinent suggestion  from  him  would  show  his  assistants 
what  was  lacking  and  enable  them  to  go  after  the  de- 


RECONSTRUCTION  OF  UNION  PACIFIC     143 

sired  information  understandingly.  To  be  associated 
with  him  in  business  afforded  an  opportunity  for  a  lib- 
eral education  in  business  problems.^ 

Many,  if  not  most,  of  the  things  that  Mr.  Harri- 
man  saw  in  his  daylight  ride  over  the  Union  Pacific 
would  have  disheartened  a  less  far-sighted  or  less 
resolute  man.  In  the  first  place,  the  condition  of  the 
road  itself  was  deplorably  bad.  The  rails  were  light, 
the  track  had  never  been  properly  ballasted,  and  the 
rolling  stock  was  either  old  or  of  limited  capacity. 
Ever}^  railroad  deteriorates  rapidly  if  adequate  ap- 
propriations are  not  made  for  maintenance  and  re- 
pair, and  in  the  five  and  a  half  years  just  prior  to  the 
reconstruction  of  the  Union  Pacific,  the  money  spent 
for  these  purposes  was  less  than  $180,000  a  year.^ 

*  "Impressions  of  E.  H.  Harriman,"  by  W.  H.  Bancroft,  vice- 
president  and  general  manager  of  the  Oregon  Short  Line.  (An  unpub- 
lished manuscript.) 

'  Between  January  i,  1893,  and  June  3,  1898,  the  expenditures  of 
the  Union  Pacific  for  maintenance  and  repair  were  $983,678,  as  fol- 
lows; 

Bridges  and  trestles $100,651 

Fences 18,281 

Real  estate i  ,350 

Side  tracks _ 12,193 

Widening  embankments 68,929 

Miscellaneous  betterments 147,567 

Reconstruction  and  grade  revision 129,338 

New  rolling  stock 505,368 

Total $983,677 

This  sum,  on  a  main  line  of  a  thousand  miles,  would  make  only  about 
$179  per  mile  annually  for  maintenance,  betterments,  and  renewal  of 
equipment. 


144  E.  H.  HARRIMAN 

On  the  main  line  of  the  road,  when  Mr.  Harriman 
went  over  it,  there  were  only  seven  miles  of  ninety- 
pound  rails,  seventy  miles  of  eighty-pound  rails,  and 
three  hundred  and  forty-four  miles  of  seventy-five- 
pound  rails.  Eighty  per  cent  of  the  track  had  sixty- 
and  seventy-pound  rails,  and  even  these  were  in  a 
more  or  less  worn  and  untrustworthy  condition. 
Only  two  hundred  miles  of  the  main  line  were  gravel- 
ballasted,  and  in  many  parts  of  these  stretches  the 
ballast  was  thin  and  scattered.  Almost  eighty  per 
cent  of  the  main  line  had  no  ballast  at  all.  Not  a 
yard  of  rail  was  tie-plated;  not  a  mile  of  track  had 
signals  of  any  kind;  and  nearly  half  the  line  needed 
replacement  of  wooden  sleepers.  The  western  part 
of  the  road,  moreover,  abounded  in  heavy  grades 
and  short  curves.  Between  Cheyenne  and  Sherman 
there  was  a  rise  of  2214  feet  in  a  distance  of  only 
thirty  miles,  and  maximum  grades  of  from  fifty  to 
ninety-eight  feet  to  the  mile  were  not  uncommon. 

The  rolling  stock  of  the  road  was  in  better  condi- 
tion perhaps  than  the  track,  for  the  reason  that  more 
money  had  recently  been  spent  on  it,  but  it,  too,  left 
much  to  be  desired.  The  company  was  carrying 
10,634  freight  cars  on  its  books,  but  most  of  them 
were  of  small  capacity  and  more  than  half  of  them 
were  old  or  unserviceable.^ 

*  A  report  made  to  Mr.  Harriman  in  May,  1898,  showed  that  3597 
of  these  cars  had  been  built  before  1880  and  that  1 180  were  worn  out. 


RECONSTRUCTION  OF  UNION  PACIFIC     145 

The  state  of  the  country  tributary  to  the  road  was 
quite  as  bad  as  that  of  the  road  itself.  Nowhere, 
perhaps,  in  the  United  States,  were  the  disastrous 
effects  of  the  panic  of  1893  and  of  the  long  period  of 
business  depression  that  followed  it  more  clearly 
manifest  than  in  the  region  west  of  the  Missouri 
River.  This  territory,  in  the  years  previous  to  1893, 
had  enjoyed  what  is  colloquially  known  as  a"  boom.** 
The  tide  of  immigration  from  the  Eastern  States  had 
flowed  into  it  rapidly,  and  thousands  of  newcomers, 
many  of  them  with  very  little  agricultural  knowledge 
or  experience,  had  bought  land  at  inflated  prices, 
borrowing  on  it  all  the  money  they  could  get.  Loan 
companies  in  the  East  made  easy  the  financing  of  such 
purchases,  and  even  savings  banks,  tempted  by  high 
rates  of  interest,  were  eager  to  invest  in  Western 
farm  mortgages.  Little  attention  was  paid,  in  many 
cases,  to  the  intrinsic  value  of  the  land,  or  its  pro- 
ductive capacity.  If  it  was  called  a  ''farm,"  and  if 
somebody  stood  ready  to  cultivate  it.  Eastern  money- 
lenders were  willing  to  finance  the  development  of  it. 
Speculative  syndicates  bought  immense  tracts  of 
land,  mortgaged  them  for  more  than  they  were 
worth,  cut  them  up  into  farms,  and  sold  them,  or 
tried  to  sell  them,  to  immigrants  from  the  East. 
Even  established  farmers  borrowed  millions  of  dol- 
lars on  their  holdings  for  the  purpose  of  building 


146  E.  H.  HARRIMAN 

houses  and  barns,  acquiring  additional  land,  or  pur- 
chasing live  stock  and  machinery.  Cities  and  towns 
in  the  agricultural  area  outgrew  their  former  bound- 
aries and  expanded  widely  in  suburban  development. 
Money  was  easily  made,  easily  borrowed,  and  freely 
spent,  and  there  seemed  to  be  no  limit  to  the  oppor- 
tunities for  speculation  and  profit.  This  apparent 
prosperity,  however,  was  largely  fictitious,  for  the 
reason  that  it  was  mainly  based  on  borrowed  capital ; 
and  when  the  panic  of  1893  came,  with  a  sudden 
contraction  in  credits  and  a  general  loss  of  confidence 
in  everything  and  everybody,  the  financial  structure, 
built  up  on  hope  and  trust,  collapsed  and  went  to 
pieces.  Interest  payments  on  speculative  loans 
ceased ;  mortgages  were  everywhere  foreclosed ;  farm- 
ers were  unable  to  meet  their  engagements,  and  a 
period  of  general  embarrassment  and  distress  fol- 
lowed the  period  of  deceptive  prosperity.  The  great 
tracts  of  land  bought  by  speculative  syndicates  were 
no  longer  salable  and  remained  uncultivated;  town 
sites  were  abandoned,  and  municipalities  which  had 
floated  loans  in  the  East  ceased  to  exist,  leaving  the 
holders  of  their  bonds  to  foreclose  on  deserted  town 
lots  and  empty  buildings.  Settlers  could  no  longer 
obtain  bank  accommodations;  solvent  business  men 
suffered  great  losses  from  the  sudden  shrinkage  in 
values;  and  even  the  population  decreased  as  ruined 


RECONSTRUCTION  OF  UNION  PACIFIC     147 

farmers  and  unemployed  farm  laborers  drifted  back 
into  the  Eastern  States.  Some  agricultural  counties 
lost  almost  their  whole  population,  while  in  others 
there  was  a  numerical  reduction  of  from  twenty-five 
to  fifty  per  cent. 

Inasmuch  as  Mr.  Harriman  had  known  all  these 
conditions  before  he  started  westward  from  New 
York,  he  was  not  discouraged  by  them  when  he  saw 
them  from  his  observation  car.  He  believed  that  the 
worst  period  of  the  depression  had  passed,  and  that  a 
revival  of  business  would  come  very  soon.  The  agri- 
cultural crops  for  1898  promised  to  be  good,  and  he 
felt  sure  that  the  Great  West  would  not  only  regain 
its  prosperity,  but  develop  more  rapidly  than  ever 
before.  As  for  the  railroad,  its  condition  was  no 
worse  than  he  had  supposed  it  to  be,  and  he  had  al- 
ways anticipated  the  complete  reconstruction  and 
reequipment  of  it.  With  capital,  skill,  and  energy  he 
knew  that  it  could  be  made  one  of  the  best  railroads 
in  the  world,  as  well  as  one  of  the  most  profitable. 
By  reducing  grades,  eliminating  curves,  and  increas- 
ing the  size  of  cars  and  the  tractive  power  of  locomo- 
tives, he  expected  not  only  to  lessen  the  road's  op- 
erating expenses,  but  to  double  its  carrying  capacity. 
That  the  territory  between  the  Missouri  River  and 
the  Pacific  would  furnish,  in  the  near  future,  an 
immense  volume  of  traffic,  he  never  for  a  moment 


148  E.  H.  HARRIMAN 

doubted ;  and  he  did  not  hesitate,  therefore,  to  take 
immediate  and  decisive  action. 

His  first  step,  as  described  by  Mr.  Otto  H.  Kahn, 
was  to 

telegraph  the  board  in  New  York,  asking  for  authority 
to  purchase  immediately  a  large  quantity  of  cars,  loco- 
motives, rails,  etc.,  and  to  start  various  works  of  im- 
provement, the  total  aggregating,  as  I  remember  it, 
something  like  $25,000,000,  which  telegram  was  fol- 
lowed by  a  written  communication  setting  forth  the 
reasons  for  his  request  and  the  main  details  of  the  pro- 
posed expenditure.  The  reasons,  in  short,  were  that  he 
clearly  discovered  signs  of  returning  prosperity  after 
the  period  of  long  depression ;  that  he  believed  this  pros- 
perity would  assume  proportions  corresponding  to  the 
depth  and  extent  of  the  long-drawn-out  and  drastic  re- 
action that  preceded  it;  that  labor  and  materials  were 
then  extremely  cheap,  but  would  begin  to  advance  be- 
fore very  long,  and  that  the  Union  Pacific  should  put  it- 
self in  shape  to  take  care  of  the  largely  increased  traffic 
which  he  foresaw,  to  attract  business  to  its  lines  by  be- 
ing better  prepared  for  it,  and  thus  afford  shippers  bet- 
ter facilities  than  its  neighbors.  Remember  that  at  that 
time  .  .  .  $25,000,000  was  a  vastly  greater  sum  than 
nowadays,  when  the  stupendous  development  of  the 
country  has  made  railroad  expenditures  of  proportion- 
ate size  familiar,  and  that  it  was  a  pretty  hazardous 
thing  to  venture  upon  this  huge  outlay  simply  upon  a 
guess  of  coming  unprecedented  prosperity.  There  was 
much  doubt  in  the  board  as  to  whether  Mr.  Harriman's 
recommendation  should  be  followed.  I  remember  the 
statement  was  made  that,  if  it  were  followed,  the  Union 
Pacific  would  find  itself  in  receivers*  hands  again  before 
two  years  had  passed.  The  subject  was  laid  over  until 


RECONSTRUCTION  OF  UNION  PACIFIC     149 

Mr.  Harriman's  return  to  New  York.  .  .  .  Incidentally  I 
may  mention,  as  characteristic  of  the  man,  that  he  felt 
so  sure  of  his  judgment  and  of  his  abiHty  to  carry  the 
board  with  him  (though  he  had  no  illusions  as  to  the 
sentiment  of  some  of  its  members  regarding  him  and  of 
the  fatal  consequences  to  his  career  in  case  his  forecast 
should  turnout  to  be  mistaken  or  even  premature)  that, 
while  he  was  still  in  the  W^est,  and  so  as  to  be  sure  not  to 
lose  time  or  opportunity,  he  took  upon  himself  the  re- 
sponsibility, at  his  personal  risk,  of  concluding  various 
contracts  for  purchases  and  work  included  in  the  pro- 
gramme advocated  by  him.^ 

Soon  after  his  arrival  in  Portland,  Mr.  Harriman 
went  southward  over  the  lines  of  the  Southern  Pa- 
cific to  San  Francisco;  thence  eastward  over  the 
Central  Pacific  to  Ogden;  northward  to  Butte,  Mon- 
tana, and  back  on  a  branch  of  the  Oregon  Short 
Line,  and  finally  eastward  on  the  main  line  of  the 
Union  Pacific  to  his  starting-point  in  Omaha,  thus 
completing  a  journey  of  more  than  five  thousand 
miles,  most  of  which  he  made  by  daylight  in  the 
observation  car  of  a  pushed  train.  Everywhere  on 
the  main  line  of  the  old  Union  Pacific  between  the 
Missouri  River  and  Portland  he  saw  evidences  of 
business  depression,  and  ever>^where  the  road  over 
which  he  passed  was  in  an  unsatisfactory  if  not  a 
neglected  condition ;  but  so  confident  was  he  of  com- 
ing prosperity,  and  so  sure  did  he  feel  of  his  ability  to 

-  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  1911), 
pp.  13-14. 


150  E.  H.  HARRIMAN 

reconstruct  the  railroad  and  put  it  into  a  state  of 
high  efficiency,  that,  as  his  train  pulled  into  Omaha, 
he  said  to  the  officials  who  accompanied  him:  ''Gen- 
tlemen, I  have  to-day  wired  New  York  for  five  thou- 
sand shares  of  Union  Pacific  preferred  at  sixty-six, 
and  any  one  of  you  is  welcome  to  take  as  few  or  as 
many  shares  as  he  likes  at  that  price  plus  the  interest 
until  paid."  ^ 

Few  railroad  officials,  or  business  men  of  any 
class,  after  going  over  a  dilapidated  and  run-down 
railroad  and  through  a  country  still  sufTering  from 
an  unprecedented  financial  debacle,  would  have 
had  courage  and  self-confidence  enough  to  invest 
$330,000  on  his  personal  judgment  of  that  rail- 
road's potential  capacity  and  that  country's  future 
prosperity. 

Upon  his  return  to  New  York  in  the  late  summer 
of  1898,  Mr.  Harriman  submitted  to  the  Union  Pa- 
cific directors  the  facts  and  reasonings  on  which  his 
telegraphic  request  for  $25,000,000  had  been  based. 
''After  long  and  strenuous  argument  he  carried  the 
day.  The  appropriation  for  the  expenditures  advo- 
cated by  him  was  made,  though  with  considerable 
head-shaking  and  misgiving,  and  it  was  this  courage- 
ous outlay,  at  a  time  when  the  unexampled  pros- 

*  "Notes  on  Association  with  E.  H.  Harriman,"  by  J.  B.  Berry^ 
chief  engineer  of  the  Union  Pacific   (An  unpublished  manuscript.) 


RECONSTRUCTION  OF  UNION  PACIFIC     151 

perity  to  come  was  barely  discernible,  and  the  intel- 
ligent and  efficient  application  of  the  funds,  that 
started  the  Union  Pacific  on  its  amazingly  success- 
ful career."  * 

This  acceptance  of  Mr.  Harriman's  plan  for  the 
complete  reconstruction  of  the  Union  Pacific,  at  an 
initial  cost  of  $25,000,000,  shows  how  deep  an  im- 
pression his  knowledge,  ability,  and  character  had 
made  upon  the  minds  of  the  directors.  When  he 
became  a  member  of  the  board,  in  December,  1897, 
he  was  comparatively  little  known,  even  to  his  asso- 
ciates, but  in  less  than  six  months  his  influence  had 
become  paramount,  and  in  less  than  a  year  (Decem- 
ber I,  1898)  he  was  made  chairman  of  the  whole 
board,  as  well  as  chairman  of  the  executive  commit- 
tee, and  was  practically  given  supreme  control  of 
Union  Pacific  affairs.  The  directors,  of  course,  con- 
tinued to  manage  the  property,  but,  as  a  rule,  they 
deferred  to  the  expert  knowledge  and  far-sighted 
judgment  of  their  chairman  in  all  questions  of  im- 
portance, w^hether  technical  or  financial. 

Few  railroad  officials,  at  that  time,  fully  appre- 
ciated the  importance  of  reducing  the  cost  of  trans- 
portation by  using  larger  cars  and  more  powerful 
locomotives.    The  average  freight  car  then  in  use 

^  Edward  Henry  Ilarriman,  by  Otto  H.  Kahn  (New  York,  191 1), 
p.  14. 


152  E.  H.  HARRIMAN 

weighed  20,000  to  40,000  pounds  and  had  a  carrying 
capacity  about  equal  to  its  own  weight.  The  average 
freight  locomotive  weighed  about  fifty  tons  and  its 
tractive  power  was  less  than  ten  tons.  Mr.  Harriman 
believed  that  by  increasing  the  size  of  the  cars  and 
the  power  of  the  locomotives  he  could  double  the 
carrying  capacity  of  every  train,  without  increasing 
in  anything  like  the  same  ratio  the  operating  expense. 
Given  a  suitable  track,  it  would  cost  little  more  to 
run  a  train  that  would  carry  a  thousand  tons  of  pay- 
ing freight  than  to  run  one  that  would  carry  only 
half  that  quantity,  and  the  difference  in  earnings 
would  be  very  great.  Heavy  equipment  and  heavy 
trains,  however,  would  require  an  approximately 
straight  and  level  track,  and  the  western  part  of  the 
Union  Pacific  was  full  of  sharp  curves  and  heavy- 
grades.  Between  Rawlins  and  Wamsutta  there  was 
a  grade  of  sixty-seven  feet  to  the  mile  each  way; 
between  Wamsutta  and  Green  River  a  grade  of 
sixty-seven  feet  going  west  and  seventy  feet  going 
east;  and  between  Cheyenne  and  Laramie  a  grade 
of  eighty-seven  feet  one  way  and  ninety-eight  the 
other.  Long  and  heavy  trains  could  not  be  run  eco- 
nomically, if  at  all,  over  this  part  of  the  main  line 
without  extensive  grade  reductions,  and  Mr.  Harri- 
man's  first  task  was  to  get  an  approximately  straight 
and  level  track,  on  which  the  heavy  equipment  that 


I 


RECONSTRUCTION  OF  UNION  PACIFIC     l^^ 

he  contemplated  could  be  economically  used.  From 
his  own  observations  and  from  the  reports  of  his 
engineers,  he  believed  that  everywhere,  except  be- 
tween Evanston  and  Ogden  and  between  Cheyenne 
and  Laramie,  grades  could  be  reduced  to  a  maximum 
of  forty-three  feet  to  the  mile,  and  this  was  adopted 
as  the  standard  for  the  road.  Bringing  the  track  to 
this  standard,  however,  was  a  work  of  colossal  dif- 
ficulty, inasmuch  as  it  involved  engineering  opera- 
tions of  the  most  formidable  nature  and  practical 
abandonment  of  the  old  line  in  a  large  part  of  the 
mountainous  region.  Fortunately  Mr.  Harriman  had 
as  his  assistants  technical  experts  of  the  first  rank. 
Chief  Engineer  Berry  was  a  man  of  conspicuous 
ability;  President  Burt  was  himself  an  engineer 
by  profession;  and  W.  L.  Park,  who  superintended 
the  ballasting,  laying  of  rails,  and  building  of  bridges, 
was  an  extremely  capable  and  energetic  ofhcer.  With 
Kilpatrick  Brothers  and  Collins  and  the  MacArthurs 
of  Chicago  as  contractors  they  made  a  strong  direct- 
ing and  working  force. 

As  soon  as  the  appropriation  of  $25,000,000  had 
been  secured,  the  work  of  reconstruction  began  along 
the  whole  extent  of  the  main  line.  Under  the  active 
direction  of  President  Burt,  contractors  enlisted  an 
army  of  laboreis  and  assembled  a  complete  equip- 
ment of  modern  machinery,  much  of  which  was  then 


154  E.  H.  HARRIMAN 

used  for  the  first  time  in  railroad-building.  In  trying 
to  get  a  maximum  grade  of  forty-three  feet  to  the 
mile,  Harriman's  engineers  encountered  the  greatest 
difficulties  in  the  mountainous  region  west  of  Chey- 
enne. 

It  is  not  perhaps  generally  understood  [says  a  well- 
informed  writer  on  the  subject]  that  the  highest  barrier 
presented  to  the  Union  Pacific  in  its  transcontinental 
run  lies  immediately  west  of  the  plains  about  Cheyenne, 
where  the  line  strikes  that  secondary  range  of  the  Rock- 
ies known  as  the  Black  Hills.  What  makes  the  ascent  of 
these  hills  of  especial  difficulty  is  a  great  elevation  cou- 
pled with  unusually  short  slopes.  Just  here,  at  the  out- 
set almost,  the  Union  Pacific  rises  to  its  greatest  height 
above  the  sea,  and  here,  in  the  rebuilding,  lay  the  prob- 
lem before  Berry,  chief  engineer,  as  to  how  the  grade  of 
this  granite  summit  might  possibly  be  reduced.  New 
limits  had  been  set  to  the  gradients  of  the  proposed  im- 
provements; but  it  is  one  thing  in  a  directors'  meeting  to 
adopt  a  grade  over  the  Rockies  of  forty-three  feet  to  the 
mile,  and  quite  another  to  go  into  the  Rockies  and  run  it. 
The  chief  engineer  had  to  match  his  wits  against  those 
of  engineers  who,  a  generation  before,  had  laid  out  the 
pioneer  line  and  done  it  well.  Thirty-five  years  of  reflec- 
tion, observation,  and  criticism  from  the  best  construe 
tionists  in  the  world  had  failed  to  develop  flaws  in  this 
earliest  effort  of  Americans  to  bridge  the  Rockies.  .  .  . 

To  find  the  line  that  Berry  determined  he  must  have, 
he  sent  good  men  into  the  hills,  only  to  be  told  that 
where  he  wanted  a  line  there  was  none.  But  when  they 
tried  to  maintain  this,  the  personal  equation,  that 
subtle  and  incalculable  factor  in  men  which,  in  the 
overcoming  of  difficulties,  makes  the  slight  difference 
between  success  and  failure,  intervened.  The  chief  en- 


RECONSTRUCTION  OF  UNION  PACIFIC     155 

gineer,  undaunted,  refused  to  abide  by  the  findings.  He 
sent  the  engineers  again;  the  second  time  they  brought 
the  Hne  he  knew  must  be  there.  It  involved  staggering 
estimates.  The  Dale  Creek  crossing,  just  beyond  Chey- 
enne, called  for  a  single  fill  nine  hundred  feet  long  and 
one  hundred  and  thirty  feet  deep.  In  these  granite 
wastes  the  engineering  figures  assumed  at  once  un- 
heard-of proportions.  Cubic  yards  went  into  the  calcu- 
lations in  millions  instead  of  thousands.  Two  creek 
crossings  called  for  eight  hundred  thousand  yards  of  em- 
bankment. Two  miles  of  new  line  required  the  moving 
of  seventeen  hundred  thousand  cubic  yards  of  material, 
and  of  this  three  hundred  thousand  were  solid  rock. 
Two  fills,  within  these  two  miles,  swallowed  a  million 
cubic  yards.  To  eliminate  three  heavy  reverse  curves 
and  two  bridges,  a  summit  cut  was  required  eighty  feet 
deep  and  a  thousand  feet  long.  The  springing  charge 
for  a  single  cone  of  rock  was  a  thousand  pounds  of  giant 
powder,  and  the  mountain  was  hurled  into  the  canon 
with  twenty  thousand  pounds  of  black.  For  these  unpre- 
cedented levelings  of  the  continental  summit  new  de- 
vices were  constantly  brought  into  play.  Time  was  an 
essence  of  the  undertaking,  and  the  American  contrac- 
tor, following  loyally  the  American  engineer,  as  he  has 
always  followed  him,  stooped  like  an  Atlas  and  took 
upon  his  shoulders  the  burden  of  the  plans. 

Grading  machines  and  dump-wagons  were  sent  into 
the  hills  in  train-loads.  Steam  shovels,  the  leviathans  of 
the  railroad  camp,  crossed  the  mountains  in  processions. 
They  scooped  the  borrow-pits,  cut  the  shale  from  the 
tunnels,  dug  the  Sherman  ballast,  and  loaded  even 
blasted  granite  upon  cars  out  of  the  rock  cuts.  Track- 
laying  machines  flung  out  rails  on  one  side  and  ties  on 
the  other  like  sandwiches.  At  one  of  the  vital  points 
Chicago  men  took  the  heavy  work,  and  in  order  to  make 
a  three-hundred-thousand-yard  fill  with  an  embank- 


156  E.  H.  HARRIMAN 

ment  of  one  hundred  and  thirty-eight  feet,  MacArthur, 
to  complete  his  contract  on  time,  threw  his  own  tem- 
porary suspension  bridge  across  the  thousand-foot 
canon,  and  ran  his  dump-cars  out  upon  his  own  rails 
and  cables.  Track-laying  —  ballasting  even  —  was 
pushed  across  the  Rockies  in  midwinter.  At  the  summit 
the  last  hill  was  drilled  and  a  tunnel  eighteen  hundred 
feet  long  was  put  through  primitive  granite.  Here  the 
Harriman  engineers  scaled  two  hundred  and  forty-seven 
feet  off  the  highest  elevation  at  which  the  road  had 
formerly  crossed  the  continent;  then  came  the  task  of 
getting  gracefully  down  the  western  slope  of  the  hills  to 
the  Laramie  plains. 

There  is  nothing  less  showy  in  the  rebuilding  of  the 
Harriman  lines,  and  nothing  that  is  more  of  a  triumph, 
than  this  feat  of  Berry's  in  getting  into  Laramie.  He 
has  used  every  trick  in  his  bag,  and  after  moving  five 
millions  of  cubic  yards  of  earth  and  rock  to  accomplish 
his  purpose,  he  comes  down  into  Laramie  with  a  forty- 
three-foot  maximum  grade  eighteen  miles  long.^  So 
close  is  the  cloth  cut  for  this  entire  distance  that  not  one 
rail  length  of  level  track  could  be  conceded  for  stations; 
they  take  their  chances  on  the  grade  as  best  they  can. 
Providence  may,  indeed,  sometimes  shift  the  axis  of 
the  granite  anticlinal  now  so  skillfully  crossed  at  Sher- 
man, Wyoming,  and  new  dispositions  may  be  called  for; 
but  until  such  an  upheaval  takes  place,  Berry's  Laramie 
grade  is  likely  to  stand. 

The  whole  road,  from  this  eastern  approach  to  the 
Black  Hills  far  out  to  Medicine  Bow  on  the  Laramie 
plains,  shows  everywhere  the  chisel  and  the  straight- 
edge of  the  Harriman  engineers.  There  are  but  two 
pieces  of  track  —  both  of  them  very  short  —  on  the 
entire  main  line  where  the  forty- three- foot  grade  is  ex- 

*   The  grade  of  the  old  line  here  was  ninety -eight  feet. 


RECONSTRUCTION  OF  UNION  PACIFIC     157 

ceeded.  Curvature  had  to  go  with  the  heavy  grades,  and 
between  the  l^lack  Hills  and  the  Wasatch  Range  seven 
thousand  degrees  gradually  disappeared.  At  one  point, 
the  new  line,  within  a  distance  of  four  miles,  crosses  the 
old  one  seven  times. 

The  Hanna  cut  uncovered  an  eight-foot  seam  of  coal; 
a  Green  River  cut  revealed  wide  deposits  of  petrified 
hsh.  First  and  last  the  contractors  uncovered  a  little  of 
everything  in  the  Rockies,  from  oil  pockets  to  under- 
ground rivers;  but  in  the  Wasatch  Range,  in  boring  a 
six-thousand-foot  tunnel,  they  struck  a  mountain  that 
for  startling  developments  broke  the  records  in  the  an- 
nals of  American  engineering.  It  was  here  that  the  un- 
derc::round  stream  was  encountered ;  but  this  was  a  mere 
incident  among  the  possibilities  in  the  mountain.  The 
formation  is  carboniferous,  thrown  up  in  the  Aspen 
Ridge  at  an  angle  of  twenty-five  degrees,  and  it  includes 
shales,  sandstone,  oil,  and  coal.  To  bore  a  hole  through 
the  mountain  at  a  depth  of  four  hundred  and  fifty  feet 
from  the  highest  point  was  not  difficult;  but  the  curious 
thing  was  that  after  being  bored  the  hole  would  not  stay 
straight.  The  mountain,  reversing  every  metaphor  and 
simile  of  stability,  refused  to  remain  in  the  same  posi- 
tion for  two  days  together.  It  moved  forcibly  into  the 
bore  from  the  right  side,  and  then  stole  quietly  in  from 
the  left;  it  descended  on  the  tunnel  with  crushing  force 
from  above,  and  rose  irresistibly  up  into  it  from  below. 
The  mountain  moved  from  every  point  of  the  compass, 
and  from  quarters  hardly  covered  by  the  compass. 
W^orkmen  grew  superstitious  and  engineers  stood  non- 
plussed. Starting  in  huge  cleavage  planes,  the  shale  be- 
came at  times  absolutely  uncontrollable.  Wall  plates, 
well  fastened  into  regular  alignment  at  night,  looked  in 
the  morning  as  if  giants  had  twisted  them.  Twelve-by- 
twelve  hard-pine  timbers,  laid  skin  to  skin  in  the  tunnel, 
were  snapped  like  matches  by  this  mysterious  pressure. 


158  E.  H.  HARRIMAN 

Engineers  are  on  record  as  stating  that  in  the  Aspen 
tunnel  such  construction  timbers  were  broken  in  differ- 
ent directions  within  a  distance  of  four  feet.  An  engi- 
neer stood  one  day  in  the  tunnel  on  a  soHd  floor  of  these 
timbers,  when  under  him  and  for  a  distance  of  two  hun- 
dred feet  ahead  of  him  the  floor  rose,  straining  and 
cracking,  three  feet  into  the  air.  Before  the  tunnel  could 
be  finished  it  became  necessary  to  line  over  seven  hun- 
dred feet  of  it  with  a  heavy  steel  and  concrete  construc- 
tion.^ 

Speaking  of  the  same  tunnel,  Superintendent  Park 

says: 

The  Aspen  tunnel  was  a  Pandora  box  of  unexpected 
events.  The  approaches  w^re  gentle  and  the  earth 
parted  easily  before  the  great  machines  of  Kilpatrick 
Brothers  &  Collins;  but  then  it  came  together  again  and 
slides  developed  that  required  Herculean  efforts  and 
new  devices  to  hold  back.  Farther  in,  at  the  eastern 
portal,  docile  limestone  was  encountered  which  remained 
where  it  was  placed  and  made  easy  work;  but  beyond  it 
shale  rock  appeared,  and,  at  the  western  end,  oily  shale 
at  a  frightful  angle.  This  slipped,  squeezed,  and  crushed ; 
great  timbers  a  foot  square  bent  and  broke  like  tooth- 
picks; gas  appeared  and  ignited,  ejecting  men,  mules, 
and  timbers  from  the  mouth  of  the  tunnel  like  a  can- 
non's shot.  It  took  brave  men  to  go  back  into  the  head- 
ings after  the  funerals;  but  they  did  return  and  con- 
quered; and  one  morning  Mr.  Harriman  appeared  on 
the  scene  and  went  through  the  sink-hole  of  so  many 
unexpected  obstacles.  ^ 

^  The  Strategy  of  Great  Railroads,  by  Frank  H.  Spearman  (New 
York,  1914),  pp.  59-66.  Mr  Spearman's  account  of  these  engineering 
operations  has  been  submitted  to  Chief  Engineer  Berry  and  has  been 
approved  by  him  as  substantially  correct. 

*  "  Recollections  of  E.  H.  Harriman  in  Connection  with  the  Union 


( 


RECONSTRUCTION  OF  UNION  PACIFIC     159 

On  the  eastern  part  of  the  line,  between  Omaha 
and  Cheyenne,  the  country  was  more  nearly  level 
and  the  engineering  difficulties  Involved  in  the  work 
of  reconstruction  were  not  so  formidable;  but  even 
here  great  changes  were  made.  Between  Omaha  and 
Lane,  Nebraska,  a  new  route  was  adopted  which 
reduced  the  distance  from  twenty-four  miles  to  fif- 
teen miles  and  lowered  the  grade  from  forty-two  feet 
to  twenty-six  feet.  Between  Lane  and  Grand  Island, 
on  a  distance  of  one  hundred  and  thirty  miles,  grades 
were  reduced  from  thirty-nine  and  forty-two  feet  to 
twenty-six  and  thirty-one  feet,  and  large  parts  of 
the  track  were  abandoned  and  relocated  in  order  to 
eliminate  curves.  All  together,  between  Omaha  and 
Ogden,  the  Harriman  engineers  abandoned  more 
than  one  hundred  and  fifty  miles  of  the  old  line  (an 
amount  equivalent  to  all  of  the  New  York  Central 
Railroad  between  New  York  City  and  Troy),  and  by 
rebuilding  it  in  new  locations  eliminated  twenty-two 
complete  circles  of  curvature  and  saved  nearly  forty 
miles  of  distance.  At  the  same  time  the  working 
force  widened  one  hundred  and  ninety-six  miles  of 
road-bed  and  ballasted  it  with  disintegrated  granite; 
put  in  almost  a  million  new  cross-ties ;  laid  forty- two 
thousand  tons  of  new  and  heavier  rails  on  a  distance 

Pacific,"  by  W.  L.  Park,  division  superintendent  at  North  Platte, 
Nebraska.   (An  unpublished  manuscript.) 


i6o  E.  H.  HARRIMAN 

of  three  hundred  and  ninety-seven  miles,  and  re- 
placed nearly  four  thousand  feet  of  old  timber 
bridges  with  permanent  earthen  embankments  or 
solid  structures  of  steel.  All  this  was  done  in  the  first 
year  and  a  half  of  Mr.  Harriman's  administration. 
During  the  same  period  immense  additions  were 
made  to  the  road's  equipment.  Two  hundred  light 
locomotives,  which  were  not  powerful  enough  to 
haul  such  trains  as  Mr.  Harriman  contemplated, 
were  sold  at  about  their  scrap  value,  and  were  re- 
placed with  heavier  engines  which  made  it  possible 
to  more  than  double  the  tonnage  of  the  average 
train.  The  rolling  stock  of  the  old  road  consisted  of 
10,634  freight  cars,  with  a  capacity  of  400,000,000 
pounds.  Mr.  Harriman  added  4760  new  cars  with  a 
capacity  of  325,000,000  pounds,  thus  nearly  doub- 
ling the  road's  carrying  power.  No'  such  addition  to 
equipment  had  ever  before  been  made  by  an  Ameri- 
can railroad  in  the  short  period  of  sixteen  months. 
During  the  first  three  years  of  Mr.  Harriman's  ad- 
ministration, he  spent  on  the  Union  Pacific,  for  im- 
provements, betterments  and  new  equipment,  the 
sum  of  $25,655,000,  while  the  Atchison,  Topeka  & 
Santa  Fe,  with  seventy  per  cent  more  mileage,  spent 
only  $11,318,000,  and  the  Northern  Pacific,  with 
ten  per  cent  more  mileage,  expended  only  $6,866,000. 
But  Mr.  Harriman  wanted  —  as  he  said  to  his  en- 


RECONSTRUCTION  OF  UNION  PACIFIC     i6i 

gineers  and  contractors  —  the  best-built  and  best- 
equipped  railroad  that  skill  could  devise  and  money 
pay  for. 

In  discussing  this  period  in  the  history  of  the 
Union  Pacific,  Superintendent  Park  says: 

The  lines  east  of  Cheyenne  did  not  require  realign- 
ment, but  they  needed  to  be  ballasted;  the  shoulders 
were  thin  and  scant.  Teams  were  employed  along  nearly 
every  mile,  widening  the  banks  for  ballast.  The  sidings 
were  extended,  cross- ties  and  heavier  rails  were  thrown 
off  alongside  the  track  with  such  astonishing  liberality 
that  the  rank  and  file  marveled  as  to  what  it  all  meant. 
The  famous  Sherman  disintegrated -granite  gravel  was 
dug  up  in  train-loads  and  transported  hundreds  of 
miles,  first  in  flatcars  and  then  on  a  car  of  new  design 
which  we  were  told  was  a  Rodger  ballast  car.  Mr.  Hart, 
the  inventor,  came  out  to  show  us  how  to  operate  them 
and  I,  personally,  opened  and  unloaded  near  North 
Platte  the  first  of  thousands  of  such  cars. 

As  superintendent,  I  was  consecutively  in  charge  of 
all  that  part  of  the  ballasting,  laying  of  rail,  construc- 
tion of  bridges,  etc.,  that  fell  to  the  operating  depart- 
ment from  Grand  Island  to  Ogden,  a  distance  of  nearly 
a  thousand  miles.  I  was  in  this  way  brought  intimately 
in  contact  with  the  construction  department.  Opera- 
tion under  heavy  construction  is  always  difficult,  and 
construction  under  heavy  traffic  is  apt  to  be  slow  and 
expensive.  By  close  cooperation  with  the  engineering 
department  traffic  was  moved  satisfactorily  and  the 
work  of  the  reconstruction  of  the  line  proceeded  very 
rapidly.  There  was  close  team  work,  and  the  most  har- 
monious relations  existed  between  the  forces.  A  friendly 
rivalry  to  outdo  each  other  stimulated  to  extraordinary 


i62  E.  H.  HARRIMAN 

effort  and  it  was  seldom  that  one  department  was  com- 
pelled to  wait  on  the  other. 

When  the  work  was  finished  in  Nebraska,  I  was 
moved  to  Cheyenne  and  placed  in  charge  of  the  Wyom- 
ing division,  where  heavy  reconstruction  was  under 
way.  Those  were  strenuous  days!  The  power  was  in- 
sufficient, the  cars  were  old  and  decrepit.  The  demands 
upon  the  operating  department  were  terrific.  Only  a 
few  months  could  be  utilized  in  pushing  the  work,  as  at 
the  average  height  of  six  thousand  feet  winter  might  be 
expected  to  begin  in  September  and  to  continue  until 
March.  The  tunnels,  at  first,  gave  much  concern.  The 
one  at  the  crest  of  the  Rocky  Mountains,  however,  de- 
veloped into  a  matter  only  of  persistent  digging  through 
flinty  granite  at  so  many  inches  an  hour,  the  boring  of 
which  could  be  computed  mathematically.  In  fact,  its 
completion  caught  the  engineers  in  other  parts  of  the 
Sherman  Hill  line  with  work  unfinished  that  should 
have  been  out  of  the  way,  and  the  mere  filling  of  Dale 
Creek  valley  with  eight  hundred  thousand  cubic  yards 
of  gravel  —  enough  to  ballast  three  hundred  miles  of 
ordinary  railroad  —  was  not  a  satisfactory  excuse  for 
the  chief  engineer. 

The  work,  as  a  whole,  progressed  with  remarkable 
regularity  and  was  free  from  the  friction  and  conflict  of 
authority  quite  frequently  incident  to  such  large  un- 
dertakings. The  pace,  of  course,  was  terrific,  and  men 
sometimes  fell  by  the  wayside  —  those  without  brains 
or  brawn  got  out  of  the  way  —  but  the  elimination  wa£ 
through  the  survival  of  the  fittest.  There  was  no  favorit- 
ism; those  who  made  good'  were  remembered  while 
those  who  did  not  were  forgotten. 

President  Burt  was  on  the  work  almost  continually; 
his  chief  engineer,  Mr.  Berry,  was  everywhere,  while 
the  general  manager,  Mr.  Dickinson,  in  his  cool,  delib- 
erate way,  steadied  the  organization  and  requisitioned 


RECONSTRUCTION  OF  UNION  PACIFIC     163 

for  the  material  and  equipment  needed  in  the  operating 
department.  New  locomotives  and  cars  began  to  arrive. 
We  heard  that  a  couple  of  compound  locomotives  had 
been  ordered;  when  they  arrived  there  were  sixty  of 
them.  Some  freight  cars  were  needed;  five  thousand 
were  ordered.  Steam  shovels,  wrecking  derricks,  and 
snow  plows  had  only  to  be  mentioned  to  be  purchased. 
The  road  grew  from  a  mere  skeleton,  a  wandering  con- 
tour line,  into  a  magnificent  highway,  straight  for  miles 
as  an  arrow.  Gentle  curves  took  the  place  of  abrupt  and 
uncomfortable  turns  first  one  way  and  then  the  other 
without  any  apparent  reason.  Smooth,  regular  grades 
were  substituted  for  sudden  and  alarming  ascents  and 
drops.  The  old  depots  and  freight  houses,  with  hiero- 
glyphics of  horses  and  wild  animals  cut  by  the  Sioux 
Indians  on  doors  and  rough  weather-boarding,  were  re- 
placed by  neat  buildings  with  comfortable  living-rooms. 
The  shacks  of  section  houses  disappeared  as  if  by  magic, 
and  in  their  places  arose  two-story  buildings,  grouped, 
properly,  away  from  the  line,  so  as  to  leave  the  view  un- 
obstructed for  safety  in  operating  the  trains.  Water- 
tubs,  housed  in  with  huge  stoves  to  keep  them  from 
freezing  and  in  close  proximity  to  the  track,  were  torn 
down,  and  graceful  tanks  with  water- treating  plants  and 
frost-proof  compartments  were  erected  at  proper  dis- 
tances. Water-pipes  and  cranes  led  to  the  locomotive 
tender,  and  by  Mr.  Harriman's  personal  order  the  dis- 
charge pipes  were  made  twelve  inches  in  diameter,  in- 
stead of  four,  or  six,  in  order  to  economize  in  the  time  of 
trains.  One  depot  was  moved  three  times  to  satisfy  all 
concerned  that  it  was  in  the  right  location ;  the  last  time 
by  Mr.  Harriman's  personal  direction,  and  it  will  re- 
main there,  because  he  was  right. -^ 

^  "  Recollections  of  E.  H.  Harriman  in  Connection  with  the  Union 
Pacific,"  by  \V.  L.  Park,  division  superintendent  at  North  Platte,  Ne- 
braska.  (An  unpublished  manuscript.) 


i64  E.  H.  HARRIMAN 

'  Although  Mr.  Harriman's  work  of  reconstruction 
began  on  the  main  stem  of  the  old  system,  it  soon 
extended  far  beyond  that.  In  1899,  less  than  a  year 
after  he  became  chairman  of  the  executive  commit- 
tee, the  Union  Pacific  reacquired  the  Oregon  Short 
Line,  one  of  the  most  important  parts  of  the  old  sys- 
tem, and  at  the  same  time  secured  control  of  the 
Oregon  Railroad  &  Navigation  Company;  thus  in- 
creasing its  mileage  from  2848  to  5391  and  recover- 
ing its  lost  outlet  on  the  Pacific  Coast  at  Portland.^ 
Mr.  Harriman  had  long  before  determined  to  secure 
possession  of  these  roads,  and  when  he  went  over 
them  in  the  summer  of  1898  he  became  deeply  inter- 
ested in  the  future  development  of  the  vast  and 
potentially  rich  territory  through  which  they  ran. 
In  riding  from  Butte  to  Salt  Lake  City  at  that  time 

1  This  merger,  or  consolidation,  was  effected  by  issuing  $27,460,- 
000  of  new  Union  Pacific  common  stock  and  exchanging  it  for  Short 
Line  stock  on  the  basis  of  share  for  share.  As  the  Short  Line  owned 
a  majority  of  the  stock  of  the  Railroad  &  Navigation  Company  the 
Union  Pacific  thus  obtained  control  of  both  roads.  Then,  later  in 
1899,  the  Union  Pacific  increased  its  own  preferred  stock  from  $75,- 
000,000  to  $100,000,000  and  its  own  common  stock  from  $88,460,100 
to  $96,178,700  for  the  purpose  of  securing  complete  ownership  of  the 
two  Oregon  lines.  The  new  shares  of  preferred  were  used  in  retiring 
the  Oregon  companies'  bonds,  and  the  new  common  shares  were  ex- 
changed for  all  the  stock  of  the  Railroad  &  Navigation  Company 
that  the  Short  Line  did  not  already  possess.  By  virtue  of  these  opera- 
tions the  Union  Pacific  became  the  owner  of  ninety-eight  per  cent  of 
the  Oregon  Short  Line  and  ninety-one  per  cent  of  the  Oregon  Rail- 
road &  Navigation  Company.  {Commercial  &"  Financial  Chronicle, 
July  22,  September  2,  and  October  13,  1899.) 


RECONSTRUCTION  OF  UNION  PACIFIC     165 

with  the  general  manager  of  the  Oregon  Short  Line, 
he  asked  the  latter  how  much  he  thought  the  road 
would  earn  that  year. 

I  told  him  [says  Mr.  Bancroft]  that  I  believed  it  would 
earn  $6,000,000.  He  thought  that,  in  my  enthusiasm,  I 
had  put  the  sum  too  high ;  but  I  replied  that  I  thought 
not;  that  the  road  would  not  only  earn  $6,000,000  that 
year,  but  in  ten  years  it  would  earn  $12,000,000.  He 
then  wanted  to  know  on  what  grounds  I  made  that 
statement.  Of  course  he  was  not  familiar  with  the 
country  at  that  time,  while  I  was;  but  he  was  quick  to 
grasp  the  possibilities  of  development  in  the  territory 
that  the  road  served.  I  explained  to  him  that  I  thought 
Idaho,  in  a  few  years,  would  be  the  best  State  west  of 
the  Missouri  River,  if  not  west  of  the  Mississippi.  It  had 
more  water  than  any  other  Western  State  and  more 
land  to  be  put  under  cultivation.  .  .  .  There  were  ranges 
in  abundance  for  sheep  and  cattle;  undeveloped  mines 
whose  value  had  not  yet  been  determined ;  undeveloped 
coal  lands  in  the  territory  that  the  railroad  serv^ed,  and 
timber  resources  second  to  only  one  other  Western 
State.  As  he  became  acquainted  with  the  country,  go- 
ing over  it  from  time  to  time,  ...  he  realized  the  possi- 
bilites  of  it  as  I  fancy  he  had  foreseen  them  in  his  first 
wonderful  vision  of  the  future ;  and  he  never  cast  aside 
any  recommendaton  made  to  him  by  me  for  the  build- 
ing of  branch  lines,  purchase  of  new  equipment,  laying 
of  new  and  heavier  steel,  purchase  of  terminals,  ballast- 
ing, signaling,  and  making  other  improvements  to  the 
property.^ 

At  the  time  when  the  Union  Pacific  acquired  the 

*  "  Impressions  of  E.  H.  Harriman,"  by  W.  H.  Bancroft,  general 
manager  of  the  Oregon  Short  Line.    (An  unpublished  manuscript.) 


t66  E.  H.  HARRIMAN 

Oregon  Short  Line,  the  physical  condition  of  the  lat- 
ter was  no  better  than  that  of  other  parts  of  the  old 
system.  The  rails  were  light;  the' track  was  unbal- 
lasted; the  grades  over  the  mountain  ranges  were 
heavy;  and  the  equipment,  of  all  classes,  was  limited 
in  capacity.  This  state  of  affairs,  however,  did  not 
last  long.  The  first  appropriation  for  reconstruction 
work  on  the  Oregon  Short  Line  under  the  Harriman 
regime  was  $6,000,000,  and  thereafter,  for  a  long 
term  of  years,  large  sums  of  money  were  spent,  both 
on  it  and  on  the  Oregon  Railroad  &  Navigation  Com- 
pany's lines,  in  the  relocation  of  tracks,  reduction  of 
grades,  straightening  of  curves,  and  purchase  of  new 
and  heavier  equipment.  Inasmuch  as  the  reconstruc- 
tion work  on  the  main  line  from  Omaha  to  Ogden 
has  already  been  described,  it  is  unnecessary,  per- 
haps, to  go  fully  into  the  details  of  leveling,  straight- 
ening, and  reequipment  on  the  two  Oregon  roads. 
Suffice  it  to  say  that  as  soon  as  they  became  a  part 
of  the  new  Union  Pacific  system,  they  were  brought 
up,  in  every  respect,  to  the  new  Union  Pacific  stand- 
ard ;  and  when  Mr.  John  W.  Gates,  of  Chicago,  went 
over  the  whole  road,  a  few  years  later,  he  said  in  a 
private  letter:  ^'I  have  traveled  over  nearly  every 
railroad  in  the  United  States,  and  have  just  been 
over  the  Union  Pacific  by  daylight.  Its  condition  is 
the  best  I  have  ever  found,  East  or  West,  and  in  my 


RECONSTRUCTION  OF  UNION  PACIFIC     167 

judgment  it  is  the  most  magnificent  railroad  prop- 
erty in  the  world.'* 

That  the  condition  of  its  track  was  almost  perfect 
is  shown  by  the  fact  that  when,  on  one  occasion,  Mr. 
Harriman  found  it  necessary  to  go  from  San  Fran- 
cisco to  New  York  quickly,  he  made  the  journey  of 
3255  miles,  in  his  own  special  train,  in  less  than  three 
days  (71  hours  and  27  minutes).  His  average  speed 
for  the  whole  distance  was  45.6  miles  an  hour,  which 
included  all  stops  for  water,  coal,  and  changing  of 
engines,  as  well  as  unavoidable  delays  of  every  kind. 
Over  the  Union  Pacific  he  made  forty-eight  miles  an 
hour  west  of  Cheyenne  and  fifty-five  east  of  that 
point,  with  an  occasional  maximum  of  eighty-two 
miles  an  hour  where  the  track  was  straight.  This 
trip  lowered  the  best  previous  record  of  speed  across 
the  continent  by  nearly  eleven  hours,  ten  of  which 
were  saved  on  the  track  of  the  Union  Pacific.^ 

The  financial  results  of  this  great  work  of  recon- 
struction became  apparent  more  quickly,  perhaps, 
than  even  Mr.  Harriman  himself  anticipated.  The  ag- 
ricultural crops  in  the  Western  States  in  1898,  1899, 
and  1900  were  exceptionally  good;  there  was  a  gen- 
eral revival  of  business,  and  the  flow  of  population 
into  the  trans-Missouri  region  not  only  began  again, 

*  The  fastest  time  previously  made  from  ocean  to  ocean  was  that 
of  the  famous  Jarrett-Palmer  theatrical  train  in  1878.  This  train  also 
went  over  the  Union  Pacific,  and  its  time  was  82  hours,  24  minutes. 


I68  E.  H.  HARRIMAN 

but  increased  so  rapidly  that  between  January  i, 
1899,  ^nd  June  30,  1900,  the  Union  Pacific  Company 
sold  to  new  settlers  an  area  of  land  almost  equal  to 
that  of  the  States  of  Delaware  and  Rhode  Island  taken 
together.  Increased  Oriental  trade  and  the  acquisi- 
tion of  the  Philippines  also  augmented  the  volume 
of  transcontinental  traffic  and  added  largely  to  the 
profits  of  all  the  Pacific  roads.  The  Union  Pacific 
system,  with  its  reduced  grades,  straightened  curves, 
and  heavy  equipment,  was  able  to  handle,  cheaply 
and  expeditiously,  all  the  business  that  offered,  and 
its  receipts  from  the  transportation  of  both  freight 
and  passengers  increased  with  great  rapidity.  In  the 
fiscal  year  ending  June  30,  1899,  its  earnings  were 
more  than  $34,000,000  gross  and  $14,000,000  net; 
and  six  months  later,  the  company  not  only  had  on 
hand  an  accumulated  cash  surplus  of  $11,385,793, 
but  owned  more  than  a  thousand  miles  of  improved 
track  upon  which  there  was  no  lien  of  any  kind.  In 
the  fiscal  year  ending  June  30,  1900,  the  road  earned 
$39,000,000  gross  and  $20,000,000  net,  and  paid  a 
first  dividend  of  one  and  a  half  per  cent  on  its  com- 
mon stock,  as  well  as  a  semi-annual  dividend  of  two 
per  cent  on  its  preferred.  In  October,  1900,  it  raised 
the  rate  on  the  common  to  four  per  cent  per  annum, 
and  at  the  end  of  the  year,  after  paying  all  divi- 
dends and  putting  vast  sums  of  money  back  into 


J 


RECONSTRUCTION  OF  UNION  PACIFIC     169 

the  property,  the  company  had  a  cash  surplus  of 
$4,843,961.1 

These  extraordinary  financial  results  were  due 
primarily  to  Mr.  Harriman's  faith  in  the  future  de- 
velopment and  prosperity  of  the  Great  West,  and  to 
his  boldness  in  spending  tens  of  millions  of  dollars  on 
a  run-down  and  inefficient  road,  for  the  purpose  of 
putting  it  in  a  condition  to  handle,  economically  and 
profitably,  the  immense  volume  of  future  traffic  that 
he  foresaw.  2  The  brilliant  success  of  this  bold  policy 
and  the  skill  and  energy  shown  in  carrying  it  out 
have  since  been  universally  recognized.  In  a  review 
of  the  work  of  reconstruction,  "The  Outlook,"  of 
New  York,  said: 

^  Commercial  df  Financial  Chronicle,  September  2  and  December 
30,  1899,  February  lo,  August  4,  and  November  10,  1900. 

2  The  sum  spent  on  the  Union  Pacific  system  for  betterments, 
new  equipment,  etc.,  in  the  five  years  from  1898  to  1902  was  nearly 
$45,000,000,  as  follows: 

1898 $505,368 

1899 ' 8,325,432 

1900 11,560,711 

1901 13,639,884 

1902 10,925,686 

Total $44,957,081 

In  the  same  period  —  and  mainly  as  a  result  of  these  expenditures  — 
the  density  of  traffic  almost  doubled,  as  shown  in  the  following  table: 

Passengers  Tons  of  freight 

carried  one  mile  carried  one  mile 

Years  Per  mile  of  road  per  mile  of  road 

1898 42,854  476,000 

1899 49,364  528,000 

1900 59,000  626,000 

1901 59,906  664,000 

1902 70,126  751,000 


170  E.  H.  HARRIMAN 

Among  all  the  stories  in  American  railroading,  and  it 
has  teemed  with  the  marvelous,  few  chapters  are  so  ex- 
traordinary as  the  building  of  the  Union  Pacific  system 
by  Edward  H.  Harriman.  The  boldness  of  the  concep- 
tion, the  magnitude  of  the  undertaking,  and  the  con- 
structive genius  shown  in  the  working-out  of  plans,  are 
all  unusual  features,  even  in  an  era  of  undertakings  that 
make  for  us,  every  day,  new  records  in  industrial  his- 
tory. ...  Mr.  Harriman  had  faith  in  the  mysterious, 
hopeless-looking,  wonder-working  Western  empire  that 
is  wrapped  in  its  unendng  dream  of  sunshine  beyond 
the  Missouri  River.  He  had  the  keenness  of  vision  to 
map  out  within  it  a  traffic  confederation  of  unequaled 
strength;  the  determination  to  supply  it  with  railways 
—  the  best  of  their  class  in  the  world  —  and  the  tremen- 
dous personality  to  persuade  careful  men  to  risk  un- 
heard-of sums  of  money  to  make  good  his  plans. 

Even  Professor  Ripley,  who  has  not  always  been 

fair  in  his  judgments  of  Mr.  Harriman,  says  of  the 

latter's  work  on  the  Union  Pacific: 

These  early  years  [1898  to  1901]  were  devoted  to  an 
entire  rebuilding  of  the  road  from  end  to  end.  Fortune 
favored  the  enterprise  from  the  start.  The  unusual  rain- 
fall in  the  arid  belt  brought  heavy  crops  and  prosperity 
at  a  crucial  time.  For  this  all  occurred,  it  should  be 
noted,  before  the  days  of  dry  farming  and  extensive  ir- 
rigation in  the  Far  West.  The  annexation  of  the  Philip- 
pine Islands  also  largely  stimulated  transcontinental 
and  Oriental  business.  Gross  earnings  increased  rap- 
idly. Dividends  began  and  substantial  surpluses,  over 
and  above  these,  were  turned  back  into  the  property  for 
every  form  of  improvement  which  would  reduce  costs 
of  operation.  .  .  .  Double  tracks  were  laid ;  solid  embank- 
ments took  the  place  of  trestles,  and  curves  were  elim- 


RECONSTRUCTION  OF  UNION  PACIFIC     171 

inated,  wherever  possible,  all  along  the  line.  The  result 
was  a  heavy  decline  in  the  operating  ratio.  This  was 
sixty-two  per  cent  in  1896.  Within  six  years  operating 
expenses  were  below  fifty-three  per  cent  of  revenue  from 
operation.  Train-loads  rapidly  increased,  so  that  the 
greatly  expanding  business  was  yielding  more  than  pro- 
portionate net  returns.  Within  three  years,  both  gross 
and  net  revenues  had  more  than  doubled.  By  1901, 
therefore,  the  company  was  in  prime  financial  condi- 
tion, with  strong  credit  and  unsurpassed  banking  con- 
nections.^ 

All  this,  it  should  be  remembered,  was  the  work  of 
less  than  four  years,  and  it  is  only  a  small  part  of 
what  was  accomplished  in  ten  years.  Throughout 
Mr.  Harriman's  connection  with  the  Union  Pacific, 
which  lasted  until  his  death,  he  never  ceased  to  im- 
prove its  physical  condition.  He  strove  to  make  it 
the  best  as  well  as  the  most  useful  railroad  in  the 
West,  and  when,  after  he  became  president  in  1904, 
he  had  brought  it  almost  to  the  point  of  perfection  as 
a  means  of  transportation,  he  turned  his  attention  to 
beautifying  it. 

On  one  of  his  trips  over  the  line  says  Superintendent 
Park  he  noticed  the  lack  of  vegetation  in  and  around 
Rock  Springs,  Wyoming,  which,  its  population  consid- 
ered, was  the  best  revenue-producing  station  on  the  road. 

"  W'hy  don't  you  put  in  a  park  here?"  he  asked.  "The 
station  is  of  attractive  design,  and  some  grass  and  a 
little  shrubbery  would  freshen  things  up  wonderfully." 

*  Railroads:  Finance  and  Organization,  by  W.  Z.  Ripley,  Ropes  Pro- 
fessor of  Economics  in  Harvard  University.   (New  York,  1915),  p.  502. 


172  E.  H.  HARRIMAN 

A  resident  of  Rock  Springs  interrupted  my  reply  by 
saying:  "Mr.  Harriman,  there  Is  not  a  sprig  of  grass  in 
Rock  Springs;  not  because  we  don't  want  It,  but  because 
the  percentage  of  alkali  in  the  soil  is  an  absolute  bar  to 
its  growth." 

Mr.  Harriman  looked  at  me  and  said:  "Nothing  is 
impossible." 

Taking  that  for  my  cue,  I  hauled  from  Utah  hun- 
dreds of  cars  of  the  best  soil  of  that  fertile  State,  distrib- 
uted it  around  the  depot,  planted  shrubbery  and  trees, 
and  to-day  one  of  the  most  attractive  spots  on  the 
Union  Pacific  Railroad  is  the  garden  surrounding  Rock 
Springs  station.  This  was  also  a  cue  for  further  work  of 
this  character  all  along  the  line.  At  my  own  personal  ex- 
pense I  had  planted  trees  in  many  localities,  and  had 
made  every  effort  to  obtain  parks  without  the  expendi- 
ture of  money,  because  previous  managements  had  not 
been  willing  to  "waste"  money,  as  they  termed  it,  in 
this  way.  Mr.  Harriman  was  willing  to  spend  money  to 
make  the  road  look  attractive.  The  result  was  the  beau- 
tiful park  at  Cheyenne,  and  the  Improvement  of  the 
landscape  at  all  terminals,  which,  in  a  few  years,  trans- 
formed the  Union  Pacific  from  a  road  through  a  desert 
to  one  along  which  the  bright  green  grass,  trees,  and 
flowers  were  in  evidence  at  every  station  of  importance. 
This  movement  soon  spread  —  the  section  foremen  be- 
gan to  plant  trees  and  flowers  —  and  now  there  is  no 
other  railroad  so  well  kept,  unless  it  be  the  Southern 
Pacific,  along  which  Mr.  Kruttschnitt  had  started  a 
similar  movement  years  before.^ 

One  of  Mr.  Harriman's  noteworthy  personal  char- 

^  "  Recollections  of  E.  H.  Harriman  in  Connection  with  the  Union 
Pacific,"  by  W.  L.  Park,  division  superintendent  at  North  Platte, 
Nebraska,  and  afterward  general  superintendent.  (An  unpublished 
manuscript.) 


RECONSTRUCTION  OF  UNION  PACIFIC     173 

acteristics  was  his  love  of  horses,  and,  curiously 
enough,  it  was  his  knowledge  of  the  capacity  of  the 
horse  for  speed  and  endurance  that  enabled  him  to 
suggest  a  remedy  for  one  of  the  evils  with  which,  in 
the  first  decade  of  the  twentieth  century,  all  Western 
railroads  had  to  contend,  namely,  train  robberies. 

The  Wyoming  division  of  the  Union  Pacific  [says  Su- 
perintendent Park]  had  long  been  a  Mecca  for  outlaws. 
The  mountainous  region  on  each  side  of  the  road,  within 
an  average  distance  of  a  hundred  miles,  afforded  oppor- 
tunities for  the  "get-away"  which  is  essential  in  the 
highwayman's  profession.  The  trains  were  held  up 
early  in  the  evening,  and  before  a  posse  could  be  organ- 
ized the  bandits  were  in  the  Hole-in-the-Wall-country 
to  the  north,  or  in  Brown's  Park,  or  the  North  Park 
country  south,  where  the  trail  was  invariably  lost.  Mr. 
Harriman,  with  his  knowledge  of  the  horse,  suggested 
that  we  find  horses  that  could  go  one  hundred  miles 
in  a  day  and  keep  them  in  the  service  of  our  special 
agents,  to  be  moved  about  from  place  to  place  on 
trains  and  in  the  country.  This  was  done  and  cured 
the  trouble.  Thereafter  the  Union  Pacific  suffered  no 
holdups,  although  the  Northern  Pacific,  Great  North- 
ern, and  Denver  &  Rio  Grande  were  frequently  vic- 
tims. Our  posse  of  train  guards,  which  became  quite 
celebrated,  was  composed  of  the  best  hunters  and 
guides.  One  of  them  —  Joe  La  Force  —  was  made 
famous  in  Spearman's  novel,  **  Whispering  Smith." 
Sam  Lawson,  formerly  guide  and  hunter  for  Lord  and 
Lady  Brassey,  was  always  to  be  depended  upon.  Mr. 
Timothy  Keliher  had  immediate  charge  of  the  guards 
and  their  equipment,  and  so  maneuvered  them  that 
complete  exemption  was  obtained  from  attacks.     The 


174  E.  H.  HARRIMAN 

expense  was  infinitesimal,  compared  with  fruitless  ex- 
penditures to  capture  the  outlaws  after  robberies  had 
occurred,  to  say  nothing  of  the  bad  advertising  such 
incidents  gave  to  a  railroad. 

In  discussing  one  of  the  holdups,  which  in  the  past 
had  been  all  too  numerous,  Mr.  Harriman  asked  me  for 
a  detailed  description  of  the  Wilcox  train  robbery.  At 
considerable  length  I  went  over  the  occurrence,  explain- 
ing the  method  adopted  by  the  bandits;  their  pursuit; 
the  killing  of  Sheriff  Hazen  of  Converse  County,  who 
was  in  charge  of  one  of  the  posses;  the  capture  of  Bob 
Lee  at  Colorado  City,  his  trial,  conviction,  and  sentence 
to  the  penitentiary;  the  killing  of  George  Curry  (''Flat- 
nose  George")  near  Green  River,  Utah,  and  of  Lon  Lo- 
gan near  Kansas  City;  and  finally  the  capture,  near 
Knoxville,  Tennessee,  of  Harvey  Logan,  the  leader  of 
the  outlaws  (as  merciless  and  bloodthirsty  a  villain  as 
this  country  ever  produced),  and  his  escape,  after  con- 
viction, from  the  Knoxville  jail.  In  concluding  the  nar- 
rative, I  stated  incidentally  that  Harvey  Logan  was  at 
that  time  reported  to  be  in  Wyoming,  either  preparing 
to  commit  another  robbery,  or  WTcak  vengeance  upon 
those  who  had  so  relentlessly  pursued  him  and  the  mem- 
bers of  his  gang. 

Mr.  Harriman  appeared  to  be  intensely  interested  in 
the  story,  and  after  a  few  moments  he  turned  to  me, 
with  one  of  his  rare  smiles,  and  said:  "Mr.  Park,  there 
are  just  two  men  in  these  United  States  upon  whom  de- 
volves the  responsibility  for  the  capture  and  reincarcer- 
ation of  Harvey  Logan." 

**Who  are  those  two  men,  Mr.  Harriman?'*  I  asked. 

Pointing  his  finger  at  me  he  said:  "The  General  Su- 
perintendent of  the  Union  Pacific  Railroad,  and"  (in- 
dicating himself  w^ith  the  same  finger)  "  the  President  of 
the  Union  Pacific  Railroad." 

Knowing  full  well  the  skill  of  Logan  with  a  revolver, 


RECONSTRUCTION  OF  UNION  PACIFIC     175 

and  his  delight  in  its  use  with  a  human  being  as  its 
target,  I  replied:  "The  General  Superintendent  of  the 
Union  Pacific  Railroad  renigs." 

Mr.  Harriman  laughed  and  said:  "So  does  the  Presi- 
dent." ^ 

Mr.  Harriman,  however,  probably  would  not  have 
"reniged"  if  he  had  been  put  to  the  test,  because  he 
was  constitutionally  fearless. 

On  one  occasion  [says  Mr.  Park]  he  described  to  me 
very  graphically  his  killing  of  a  large  Yakutat  bear  in 
Alaska  —  an  incident  which,  on  account  of  his  personal 
modesty,  is  not  generally  known.  The  story,  if  pub- 
lished, would  illustrate  a  side  of  his  character  which, 
when  occasion  offered,  was  quite  prominent  —  that  of 
great  personal  courage.  From  my  own  observation  and 
that  of  others  I  am  convinced  that  he  was  wholly  with- 
out fear.  In  time  of  war  he  would  undoubtedly  have 
been  a  splendid  general.  Like  Napoleon  and  Grant,  un- 
der the  most  trying  circumstances  he  was  at  his  best  — 
cool,  deliberate,  and  calculating  —  with  an  intensely 
patriotic  inspiration  which  would  have  impelled  him  to 
make  any  sacrifice  for  his  country.* 

The  history  of  the  Union  Pacific,  in  the  first  decade 
of  the  twentieth  century,  shows  a  progressive  realiza- 
tion of  Mr.  Harriman's  anticipations  and  a  steady 
working-out  of  his  far-reaching  plans.  No  other  man 
—  with  the  possible  exception  of  James  J.  Hill  — 
had  so  clear  a  prevision  of  the  development  and 
prosperity  that  were  coming  to  the  Great  West,  and 

*  "Recollections  of  E.  H.  Harriman  in  Connection  with  the  Union 
Pacific,"  by  \V.  L.  Park.   (An  unpublished  manuscript.)  *  Ibid. 


176  E.  H.  HARRIMAN 

certainly  no  other  railroad  man  made  such  prepara- 
tions to  foster  that  development,  augment  that  pros- 
perity, and  provide  for  the  increased  traffic  that 
would  result  therefrom.  Between  1900  and  1910,  the 
population  of  the  trans- Missouri  States  increased 
about  forty  per  cent,  while  the  increase  in  the  value 
of  farm  lands  along  the  lines  of  the  Union  Pacific 
ranged  from  100  to  353  per  cent.  In  Idaho,  which 
Mr.  Bancroft  predicted  would  be  "the  best  State 
west  of  the  Missouri  River,*'  the  increase  was  more 
than  threefold.  This  enhanced  value  of  farm  lands 
was  partly  due  to  better  and  more  extensive  cultiva- 
tion, and  partly  to  a  greatly  improved  railroad  serv- 
ice which  enabled  the  farmers  to  send  their  crops, 
cheaply  and  promptly,  to  markets  where  there  was 
an  active  demand  for  them.  The  annual  value  of 
these  crops,  in  the  States  directly  tributary  to  the 
Union  Pacific,  increased  in  the  decade  1 899-1 909, 
by  percentages  that  ranged  from  89  to  235.^ 


*                                                 Value  of  crops  Per  cent 

1899  1909  of  increase 

Kansas $113,522,693  $214,859,597  89.3 

Nebraska 92,469,326  196,125,632  112. 

Oregon 21,806,687  49,040,725  124.9 

Utah 8,242,985  18,484,615  124.2 

Montana 10,692,515  29,714,563  177.9 

Colorado 16,970,588  50.974.958  200.4 

Washington 23,532,150  78,927,053  235.4 

Idaho 9,267,261  34,357,851  270.7 

Totals $296,504,205  $672,484,994 

Total  amount  of  increase $375,980,789 

{Thirteenth  Census.) 


RECONSTRUCTION  OF  UNION  PACIFIC     177 

Agricultural  crops,  however,  were  not  the  only 
Western  products  that  needed  transportation.  In 
the  revival  of  business  that  followed  the  reconstruc- 
tion of  the  Union  Pacific,  industrial  activity  in- 
creased rapidly  in  all  the  far  Western  States,  and 
between  1900  and  19 10  the  annual  value  of  manu- 
factured products  in  Union  Pacific  territory  rose 
from  $257,000,000  to  $530,000,000  in  California; 
in  Colorado  from  $89,000,000  to  $130,000,000;  in 
Idaho  from  $3,000,000  to  $22,000,000;  in  Kansas 
from  $154,000,000  to  $325,000,000;  in  Nebraska 
from  $13,000,000  to  $199,000,000;  in  Utah  from 
$18,000,000  to  $62,000,000;  and  in  Washington  from 
$71,000,000  to  $221,000,000.  This  group  of  States 
alone,  in  1909,  produced  manufactured  goods  valued 
at  $1 ,500,000,000,  as  well  as  farm  crops  to  the  value  of 
$672,000,000  more. 

It  was  the  growth  and  development  indicated  by 
the  above  figures  that  Mr.  Harriman  anticipated 
when  he  began  the  reconstruction  of  the  Union  Pa- 
cific in  the  period  of  business  depression  that  fol- 
lowed the  panic  of  1893.  The  expenditures  made  by 
him  for  railroad  betterments  from  year  to  year  show 
that  he  was  never  taken  by  surprise,  and  that  the 
wonderful  transportation  system  which  he  created 
was  always  equal  to  the  demands  made  upon  it  by  an 
ever-increasing  volume  of  traffic.  During  the  period 


178  E.  H.  HARRIMAN 

of  his  administration  the  Union  Pacific  Company 
spent  for  additions,  extensions,  betterments,  and 
new  equipment  more  than  $174,000,000,  a  large  part 
of  which  came  out  of  earnings.^  The  result  of  this 
liberal  —  not  to  say  unprecedented  —  expenditure 
was  a  complete  and  radical  transformation  of  the 
road.  Not  only  were  grades  reduced  and  sharp 
curves  eliminated,  but  4029  miles  of  heavier  rails 
were  laid  on  22,139,000  new  cross-ties;  2319  miles 
of  track  were  ballasted,  and  137,000  lineal  feet 
(twenty-six  miles)  of  wooden  bridges  were  taken 
away  and  replaced  with  solid  earthen  embank- 
ments or  bridges  of  concrete  and  steel.  Nearly  $3,- 
000,000  was  spent,  moreover,  for  automatic  block 
signals,  and  in  1909,  forty  per  cent  of  all  the  rail- 

*  Expenditures  of  the  Union  Pacific  system  (not  including  the 
Southern  Pacific)  for  additions,  betterments,  and  new  equipment, 
during  Mr.  Harriman's  administration: 

Years  Amounts 

1898 $        505,368 

1899 8,325,432 

1900 11,560,711 

1901 13,639,884 

1902 10,894,291 

1903 12,928,881 

1904 11,488,467 

1905 5481,709 

1906 29,175,761 

1907 28,051,496 

1908 23,261,746 

1909 19,279,832 

Total $174,593,578 


RECONSTRUCTION  OF  UNION  PACIFIC     179 

road  mileage  thus  protected  in  the  United  States 
was  included  in  the  Harriman  lines. 

Upon  a  track  thus  improved  it  was  safe  and  prac- 
ticable to  use  much  heavier  equipment,  and  the  sum 
spent  for  such  equipment  between  1899  and  1909 
was  $38,636,715.  In  1898,  the  average  weight  of 
Union  Pacific  locomotives,  on  the  drivers,  was  thirty- 
seven  tons;  in  1909  it  was  sixty-eight  tons.  In  1898, 
the  total  capacity  of  all  the  freight  cars  that  the  com- 
pany owned  was  414,858  tons.  In  1909,  it  had  grown 
to  984,923  tons,  while  the  average  train-load  had 
increased  from  277  tons  to  548  tons.  The  volume  of 
business  done  by  means  of  this  enlarged  equipment 
and  heavier  train-loading  may  be  measured  by  the 
traffic  density  —  that  is,  by  the  number  of  tons 
hauled  one  mile  per  mile  of  road.  In  1898,  this  ton- 
nage was  476,009;  in  1909,  it  was  1,054,427  (includ- 
ing all  freight).  The  number  of  tons  of  all  freight 
hauled  one  mile  increased  from  2,535,069,468  to 
6,393,072,432.  Only  a  small  part  of  this  increased 
volume  of  business  was  due  to  new  branch  lines  and 
greater  mileage;  most  of  it  was  the  direct  result  of 
greater  efficiency  —  that  is,  greater  carrying  capac- 
ity over  approximately  the  same  length  of  track. 
Between  1898  and  19 10,  the  average  number  of 
miles  operated  increased  only  eighteen  per  cent, 
while  the  volume  of  business  done  increased  one 


i8o  E.  H.  HARRIMAN 

hundred  and  seventy-six  per  cent.  In  1898,  the  gross 
transportation  revenues  were  only  $32,631,000;  in 
1910,  they  had  grown  to  $78,750,000.^ 

In  1905,  the  dividend  on  the  common  stock  was 
raised  to  five  per  cent;  a  Httle  later  to  six  per  cent, 
and  in  1906  to  ten  per  cent;  while  the  market  value 
of  the  stock  increased  in  value  from  about  $25  a 
share  in  1898  to  $195  a  share  in  1906. 

It  is  evident  from  these  figures  that  the  recon- 
struction and  subsequent  management  of  the  Union 
Pacific  brought  great  wealth  to  Mr.  Harriman, 
through  his  ownership  of  many  thousand  shares  of 
its  stock;  but  his  reward  was  not  out  of  proportion  to 
the  benefits  that  he  conferred  upon  the  Nation. 
Between  1898  and  1909,  the  service  rendered  by  the 
Union  Pacific  to  the  public  far  more  than  doubled  in 

^  The  progressive  increase  in  earnings  due  mainly  to  greater  trans- 
portation efficiency  is  shown  in  the  following  table: 

Miles  of  Gross  trans-  Net  surplus 

railway  portation  before  divi- 

Years                               operated  revenue  dends 

1898 5325  $32,631,769  $9,212,575 

1899 5357  34,394,729  9,792,426 

1900 5427  39,147,697  12,272,017 

1901 5686  ^    43,538,181  12,535.057 

1902 5710  47,500,279  14,503,249 

1903 5762  51,075,189  15,276,642 

1904 5352  55,279,230  16,597,092 

1905 5357  59,324,948  22,785,507 

1906 5403  67,281,543  31,764,674 

1907 5644  76,040,726  36,176,021 

1908 5781  76,039,225  35,719,400 

1909 6062  78,750,461  41,598,401 


RECONSTRUCTION  OF  UNION  PACIFIC     i8i 

extent  and  importance.  Freight  transportation  facil- 
ities increased  in  that  period  by  one  hundred  and 
forty  per  cent  and  passenger  travel  facilities  by 
nearly  two  hundred  and  fifty  per  cent.  What  this 
meant  to  the  people  of  the  trans-Missouri  territory 
is  shown  by  the  increase  in  farm  values  in  the  States 
that  the  Union  Pacific  served.  In  the  year  1900,  the 
value  of  farm  lands  in  Kansas,  Nebraska,  Oregon, 
Utah,  Montana,  Colorado,  Washington,  and  Idaho 
was  $2,342,000,000.  In  1910,  it  was  $6,580,000,000. 
Of  course  there  could  not  have  been  anything  like 
this  increase  of  four  billion  dollars  in  agricultural 
wealth  without  the  improved  transportation  service 
furnished  by  the  transcontinental  railroads,  and 
largely  by  the  Union  Pacific.  Such  service,  moreover, 
was  rendered  more  and  more  cheaply  from  year  to 
year.  During  the  period  of  Mr.  Harriman's  adminis- 
tration freight  rates  on  the  Union  Pacific  decreased 
by  from  fifteen  to  seventeen  per  cent,^  while  the 
service  rendered  increased  by  one  hundred  and  forty 
per  cent.  Freight  rates  in  the  Western  territory 
finally  became  so  low  that  for  the  cost  of  a  two-cent 
postage  stamp  a  farmer  could  have  a  ton  of  freight 
carried  more  than  two  miles;  for  the  price  of  an  or- 
dinary lantern  globe  he  could  have  it  moved  sixteen 

^  Testimony  of  Mr.  Harriman  before  the  Interstate  Commerce 
Commission,  p.  172. 


i82  E.  H.  HARRIMAN 

mil^s;  and  for  the  cost  of  ten  pounds  of  tenpenny 
nails  he  could  send  it  forty-four  miles.  The  trans- 
portation of  a  ton  of  freight  for  a  distance  of  one 
hundred  and  thirty-eight  miles  cost  him  less  than  he 
had  to  pay  for  a  good  milk  pail,  and  for  the  price  of  a 
No.  2  Ames  shovel  he  could  have  a  ton  of  freight 
carried  one  hundred  and  sixty-six  miles. ^ 

It  is  not  surprising  that  with  such  rates,  and  al- 
most unlimited  railroad  facilities,  the  States  through 
which  the  Union  Pacific  ran  doubled  their  crop  out- 
put and  trebled  the  value  of  their  agricultural  lands 
in  a  single  decade.  If,  therefore,  Mr.  Harriman's 
achievement  be  regarded  solely  from  the  point  of 
view  of  public  benefit,  there  can  be  no  question  that 
by  increasing  cheapness  and  efficiency  of  transporta- 
tion it  built  up  American  industry;  enlarged  the 
earnings  of  both  labor  and  capital;  and  brought 
opportunities  for  greater  comfort  and  happiness  to 
millions  of  human  beings. 

Mr.  Harriman  found  the  Union  Pacific  insolvent,  dis- 
membered, decrepit,  its  sources  of  revenue  curtailed, 
without  important  alliances,  friendless.  He  left  it  finan- 
cially powerful,  its  severed  members  restored,  its  road- 
bed and  equipment  renewed  and  of  the  highest  type, 
dominating  traffic  conditions  in  a  wide  territory  and 
with  alliances  and  influence  extending  from  the  Atlan- 
tic to  the  farther  shore  of  the  Pacific,  from  the  Gulf  of 

*  The  Truth  about  the  Railroads^  by  Howard  Elliott  (New  York, 
I9i3)»  P-  158. 


RECONSTRUCTION  OF  UNION  PACIFIC     183 

Mexico  to  the  Great  Lakes  and  even  across  the  Cana- 
dian frontier.  The  property  which  had  seemed  to  his 
predecessors  to  be  fit  for  nothing  more  than  to  be  a  con- 
tinuous object  and  means  of  poHtical  and  financial  in- 
trigue, he  transformed  into  a  wealth-creating  and  dis- 
seminating machine  of  the  highest  ef^ciency.  The 
transportation-buying  public,  those  who  travel  and 
those  w^ho  ship,  has  seen  efficiency  of  the  highest  degree 
substituted  for  inefficiency  of  the  lowest  order ;  the  Fed- 
eral Government  has  collected  millions  which  seemed 
hopelessly  lost;  and  shareholders  have  received  gratify- 
ing returns  upon  their  investments.  Rates  have  been 
lowered  and  wages  raised,  traffic  has  multiplied,  and  the 
region  served  has  acquired  prosperity  without  prece- 
dent. To  Mr.  Harriman,  more  than  to  any  other  sin- 
gle agency,  is  due  the  fact  that,  to  an  extent  unknown 
before, 

"Through  the  veins 
Of  that  vast  empire  flows,  in 
Strengthening  tides. 
Trade,  the  calm  health  of  nations! "  * 

Professor  W.  G.  Sumner,  one  of  the  wisest  and 
most  far-sighted  of  American  economists,  said  a  few 
years  ago:  ''The  cheapening  of  transportation  be- 
tween the  great  centers  of  population  and  the  great 
outlying  masses  of  unoccupied  land  is  the  greatest 
fact  of  our  time,  and  it  is  the  greatest  economic  and 

1  "Harriman  the  EfBcient,"  by  H.  T.  Newcomb.  Railway  World, 
September  17,  1909.  Mr.  Newcomb  was  formerly  statistician  and 
expert  of  the  Interstate  Commerce  Commission,  and,  with  Professor 
Adams,  acted  in  the  same  capacity  for  the  Senate  Committee  on  Inter- 
state Commerce  prior  to  the  enactment  of  the  Hepburn  Law. 


i84  E.  H.  HARRIMAN 

social  revolution  that  has  ever  taken  place.'*  In  this 
greatest  of  all  social  and  economic  revolutions,  no  sin- 
gle person  played  a  more  important  and  command- 
ing part  than  E.  H.  Harriman. 


I 


CHAPTER  VII 

THE  EXPEDITION  TO  ALASKA 

N  the  early  spring  of  1899,  when  the  reconstruc- 
tion of  the  Union  Pacific  was  well  under  way, 
Mr.  Harriman  determined  to  get  a  little  rest  and 
recreation  by  making  a  summer  cruise  in  a  chartered 
steamer  up  the  coast  of  Alaska  to  the  island  of  Ka- 
diak.  His  attention  was  directed  to  this  particular  part 
of  the  territory  by  D.  G.  Elliot,  of  the  Field  Colum- 
bian Museum  in  Chicago,  who  had  interested  him 
in  the  opportunities  there  offered  for  hunting  the 
Kadiak  bear,  said  to  be  the  largest  in  the  world. 
To  a  man  who  loved  nature  and  out-of-door  life  as 
much  as  Mr.  Harriman  did,  the  prospect  of  cruising 
for  a  month  or  two  through  the  wild,  glacier- fringed 
straits  and  fiords  of  the  mountainous  Alaskan  coast 
was  in  itself  attractive,  but  it  was  made  doubly  so  by 
the  lure  of  adventurous  sport  in  a  picturesque,  little 
known  region,  and  the  chance  of  getting  a  specimen 
of  the  great  Kadiak  bear.  His  original  intention  was 
to  take  with  him  only  his  own  family  and  a  few 
friends;  but  as  comfort  and  safety  required  a  large 
vessel,  there  was  room  for  many  more,  and  he  there- 
fore decided  to  include  as  his  guests  twenty-five  or 
thirty  scientists,  artists,  and  photographers,  who, 


i86  E.  H.  HARRIMAN 

''while  adding  to  the  interest  and  pleasure  of  the 
expedition,  would  gather  useful  information  and 
distribute  it  for  the  benefit  of  others."  In  pursuance 
of  this  plan  he  went  to  Washington,  in  March,  1899, 
to  confer  with  Dr.  C.  Hart  Merriam,  then  Chief  of 
the  United  States  Biological  Survey,  with  regard  to 
the  personnel  of  the  scientific  stafT. 

He  came  unannounced  [says  Dr.  Merriam]  and  told 
me  in  an  unassuming,  matter-of-fact  way  that  he  was 
planning  a  trip  along  the  Alaskan  coast  in  a  privately 
chartered  steamer  and  desired  to  take  along  a  party  of 
scientific  men.  He  asked  my  cooperation  in  arranging 
plans  for  the  expedition  and  in  selecting  the  scientific 
men  and  outfits  necessary  for  the  work.  Never  having 
heard  of  Mr.  Harriman  before,  and  knowing  nothing  of 
his  resources,  I  made  inquiries  of  a  railroad  official  (for 
Mr.  Harriman  had  incidentally  remarked  that  he  was  a 
railroad  man)  and  was  informed  that  he  was  a  man  of 
means  and  a  rising  power  in  the  railroad  world.  When 
therefore  he  called  at  my  house  later  in  the  day,  accom- 
panied by  Dr.  Lewis  Rutherford  Morris,  of  New  York, 
and  told  me  more  of  his  plans,  I  was  less  astonished  to 
learn  that  he  had  already  engaged  the  steamship  George 
W.  Elder  and  was  having  her  refitted  for  the  voyage.  He 
remarked  that  he  had  secured  a  number  of  books  and 
maps  relating  to  Alaska  and  wished  advice  as  to  what 
others  were  needed,  and  added  that  while  his  plans  were 
as  yet  in  the  formative  stage,  he  thought  there  should  be 
two  men  of  recognized  ability  in  each  department  of 
natural  science  —  two  zoologists,  two  botanists,  two 
geologists,  and  so  on  —  and  that  each  should  have  an 
assistant.  When  I  raised  the  question  of  cost,  remark- 
ing that  few  scientific  men  were  financially  able  to  meet 


THE  EXPEDITION  TO  ALASKA         187 

the  expenses  incident  to  such  a  trip,  he  promptly  put  my 
mind  at  rest  by  replying  that  all  the  members  of  the  ex- 
pedition would  be  his  guests. 

After  ascertaining  his  general  views  as  to  the  kind  of 
men  desired  for  the  scientific  party,  I  suggested  one  of 
our  most  distinguished  naturalists.  Dr.  William  H.  Dall, 
who  had  spent  many  years  in  Alaska,  and  the  eminent 
geologist  and  physiographer,  Dr.  G.  K.  Gilbert.  Mr. 
Harriman  asked  me  to  bring  them  to  call  at  his  rooms  at 
the  hotel.  This  I  did,  and  the  subject  of  the  expedition 
was  talked  over  at  some  length.  In  the  course  of  the  con- 
versation we  were  impressed  by  Mr.  Harriman's  frank- 
ness and  simplicity  of  manner,  and  by  the  directness  and 
relevance  of  his  questions.  He  was  very  much  in  ear- 
nest, and  we  realized  that  the  expedition  was  bound  to  go, 
that  it  would  afford  opportunity  for  scientific  research, 
and  that  to  be  a  member  of  it  would  be  the  event  of  a 
lifetime.  Before  leaving  Washington,  Mr.  Harriman  in- 
vited both  Dall  and  Gilbert  to  go  and  both  accepted. 
Thus  early  was  the  nucleus  of  the  scientific  party  estab- 
lished and  the  high  character  of  the  expedition  assured.^ 

The  technical  staff,  as  finally  made  up,  consisted 
of  two  photographers,  three  artists,  and  twenty-five 
men  of  science  representing  three  museums  of  natu- 
ral history,  four  departments  or  bureaus  of  the  Na- 
tional Government  in  W^ashington,  and  six  of  our 
largest  and  most  important  universities.  No  more 
distinguished  body  of  American  scientists  was  ever 
gathered  together  for  an  expedition  of  this  kind. 

*  "Recollections  and  Impressions  of  E.  H.  Harriman,"  by  Dr.  C. 
Hart  Merriam,  then  Chief  of  the  U.S.  Biological  Survey.  (An  unpub- 
lished manuscript.) 


i88  E.  H.  HARRIMAN 

Most  of  its  members  had  a  national  reputation,  and 
among  them  were  men  as  well  known,  even  to  the 
general  public,  as  R.  Swain  Gifford,  the  New  York 
artist;  John  Burroughs,  author  and  ornithologist; 
John  Muir,  mountain-climber  and  expert  student  of 
glagiers;  and  George  Bird  Grinnell,  author  of  many 
books  on  American  Indians  and  big-game  hunting, 
and  also  editor,  at  that  time,  of  ''Forest  and  Stream." 
Among  the  most  eminent  of  the  naturalists  were 
Professor  Brewer,  of  Yale;  Dr.  Dall,  G.  K.  Gilbert, 
and  Henry  Gannett,  of  the  U.S.  Geological  Survey; 
Dr.  Merriam  and  Dr.  Fisher,  of  the  U.S.  Biological 
Survey;  Daniel  G.  Elliot,  zoologist,  of  the  Field 
Columbian  Museum,  Chicago;  Robert  Ridgway, 
ornithologist,  of  the  National  Museum  in  Washing- 
ton; and  Professor  Fernow,  Dean  of  the  School  of 
Forestry  in  Cornell  University.  Mr.  Harriman^s 
own  party  numbered  thirteen  and  consisted  of  Mrs. 
Harriman  and  five  children;  Mr.  and  Mrs.  W.  H. 
Averell,  of  Rochester,  New  York,  and  their  daughter, 
Miss  Elizabeth  Averell;  Miss  Dorothea  Draper;  Dr. 
Lewis  Rutherford  Morris,  of  New  York  City;  and 
Dr.  E.  L.  Trudeau,  Jr.,  of  Saranac  Lake.  The  mem- 
bers of  the  expedition  from  the  East  left  New  York 
for  the  Pacific  Coast  by  special  train  on  the  23d  of 
May,  1899,  and  those  from  the  West  joined  the 
main  party  at  Portland  or  Seattle. 


THE  EXPEDITION  TO  ALASKA         189 

Mr.  Harriman  lost  no  time  in  organizing  his  sci- 
entific staff  and  making  plans  for  its  work. 

On  board  the  special  train  which  carried  us  from  New 
York  to  Seattle  [says  Dr.  Merriam],  we  were  given  an 
insight  into  Mr.  Harriman's  methodical  ways,  and  an 
opportunity  of  learning  something  of  his  power  of  organ- 
ization and  skill  in  dividing  labor  and  fixing  responsibil- 
ity. The  day  after  leaving  New  York,  he  called  a  meet- 
ing of  the  scientific  men,  said  a  few  words  about  the  pur- 
poses of  the  expedition,  and  announced  his  desire  to 
place  the  specialists  in  control  of  their  work,  and  to 
leave  the  details  of  the  route  and  itinerary  to  those  most 
familiar  with  the  region  and  the  opportunties  it  was 
likely  to  afford.  This  was  followed  by  the  suggestion 
that  work  would  be  facilitated  and  time  saved  by  the 
creation  of  an  executive  committee.  Before  we  reached 
Chicago  such  a  comimittee  was  appointed,  and  the  next 
day  special  committees  on  zoology,  botany,  geology, 
mining,  and  big  game  were  added.  The  wisdom  of  this 
course  was  demonstrated  over  and  over  again  by  the  effi- 
ciency of  the  organization  —  an  organization  which  per- 
fected its  plans  in  advance  and  took  advantage  of  every 
opportunity  for  work,  thus  accomplishing  results  out  of 
all  proportion  to  the  time  spent  in  the  field. 

Even  the  railroad  journey  was  full  of  interest  and 
profit.  To  take  a  party  across  the  continent  by  special 
train,  and  thence  to  Alaska  and  Siberia  by  privately 
chartered  steamer,  would  seem  to  be  enough;  but  Mr. 
Harriman  was  not  content  with  this;  he  wanted  us  to 
enjoy  everything  on  the  way.  So  at  Omaha  a  special 
trolley  took  us  to  the  Omaha  Exposition;  at  Shoshone, 
Idaho,  a  small  caravan  of  teams  and  saddle-horses  (sent 
from  Utah  on  telegraphic  orders)  carried  us  twenty-five 
miles  to  the  lava  caiion  of  Snake  River  to  see  the  great 
Shoshone  Falls;  at  Nampa  the  train  was  run   up  a 


190  E.  H.  HARRIMAN 

branch  to  Boise,  where  we  were  shown  the  mint  and 
given  a  plunge  in  the  great  natatorium;  at  Pendleton, 
Oregon,  we  were  taken  on  a  much  longer  detour,  cross- 
ing Snake  River  at  Riparia,  traversing  the  famous 
Palouse  wheat  country  to  Colfax,  and  thence,  by  a 
Northern  Pacific  special,  winding  down  a  side  canon 
to  Lewiston.  At  Lewiston  we  were  met  by  a  steamer 
which  took  us  down  the  long  canon  of  Snake  River  and 
landed  us  at  the  bridge  near  the  junction  of  the  Snake 
with  the  Columbia,  at  which  point  our  train  was  wait- 
ing to  carry  us  through  the  picturesque  gorge  of  the 
Columbia  to  Portland,  where,  before  setting  out  for 
Seattle,  a  special  trolley  took  us  to  the  Heights.^ 

When  the  party  arrived  in  Seattle,  the  steamship 
George  W.  Elder,  which  had  been  refitted  under  the 
supervision  of  President  A.  L.  Mohler,  of  the  Oregon 
Railroad  &  Navigation  Company,  was  in  waiting. 
She  had  a  crew  of  sixty-five  officers  and  men,  with 
Peter  Doran  as  captain,  and  Mr.  Harriman  had 
engaged  an  additional  force  of  eleven  hunters,  pack- 
ers, and  campers  to  assist  the  landing  parties.  The 
steamer's  equipment  for  the  Northern  voyage  in- 
cluded a  steam  launch,  two  naphtha  launches,  extra 
boats,  a  number  of  folding^  canvas  canoes,  tents, 
sleeping-bags,  camp  outfits,  and  everything  that 
could  possibly  be  needed  by  the  hunters  and  scien- 
tific explorers  of  the  party. 

The  expedition  sailed  from  Seattle  on  the  31st  of 

*  Dr.  Merriam's  manuscript,  previously  cited. 


THE  EXPEDITION  TO  ALASKA  191 

May,  and  after  stopping  a  few  hours  in  Victoria, 
proceeded  northward  through  the  channel  that  sep- 
arates Vancouver  Island  from  the  mainland,  and 
entered  the  vast  labyrinth  of  islands,  straits,  pas- 
sages, and  mountain-enclosed  fiords  which  extends 
northward  along  the  Alaskan  coast. 

Before  us  [says  John  Burroughs  in  his  narrative  of  the 
voyage]  was  a  cruise  of  several  thousand  miles,  one 
thousand  of  which  was  through  probably  the  finest 
scenery  of  the  kind  in  the  world  that  can  be  seen  from 
the  deck  of  a  ship  —  the  scenery  of  fiords  and  mountain- 
locked  bays  and  arms  of  the  sea.  Day  after  day  a  pano- 
rama unrolled  before  us  with  features  that  might  have 
been  gathered  from  the  Highlands  of  the  Hudson,  from 
the  Thousand  Islands,  the  Saguenay,  or  the  Range  ley 
Lakes  in  Maine,  with  the  addition  of  towering  snow- 
capped peaks  thrown  in  for  a  background.  The  edge  of 
this  part  of  the  continent,  for  a  thousand  miles,  has  been 
broken  into  fragments,  great  and  small,  as  by  the  stroke 
of  some  earth-cracking  hammer,  and  into  the  openings 
and  channels  thus  formed  the  sea  flows  freely,  often  at  a 
depth  of  from  one  to  two  thousand  feet.  It  was  along 
these  inland  ocean  highways,  through  tortuous  narrows, 
up  smooth,  placid  inlets,  across  broad  island-studded 
gulfs  and  bays,  with  now  and  then  the  mighty  throb  of 
the  Pacific  felt  for  an  hour  or  two  through  some  open 
door  in  the  wall  of  islands,  that  our  course  lay.^ 

As  the  steamer  proceeded  northward,  short  stops 
were  made  at  such  points  of  interest  as  Lowe  Inlet, 
the  mission  station  of  New  Metlakatla,  Wrangell 

^  The  Harriman  Alaska  Expedition,  edited  by  Dr.  C.  Hart  Mer- 
riam  (Doubleday,  Page  &  Co.,  New  York,  1901),  vol.  i,  pp.  19-20. 


192  E.  H.  HARRIMAN 

and  Juneau,  and  at  Skagway  the  officials  of  the 
newly  constructed  White  Pass  &  Yukon  Railroad 
took  the  party  by  special  train  to  the  summit  of 
White  Pass,  nearly  three  thousand  feet  above  the 
sea,  where  the  flags  of  the  United  States  and  Great 
Britain  floated  side  by  side  over  the  provisional 
boundary  between  British  Columbia  and  Alaska. 

When  the  expedition  entered  Northern  waters 
spring  was  already  far  advanced,  and  at  all  the  places 
along  the  coast  where  the  ornithologists  landed  they 
found  birds  in  abundance.  Even  at  the  summit  of 
the  White  Pass,  amid  snow  and  ice,  the  rosy  finch, 
titlark,  and  golden-crown  sparrow  were  singing  mer- 
rily, while  at  lower  altitudes  the  dwarf  hermit  thrush, 
russet- backed  thrush,  summer  warbler,  Lincoln's 
finch,  and  Townsend's  sparrow  were  not  only  sing- 
ing, but  building  their  nests.  Few  members  of  the 
party  expected  to  see  in  Northern  latitudes,  and  in 
the  wild  environment  of  mountains,  glaciers,  and 
gloomy  spruce  forests,  the  diminutive  humming- 
bird of  the  temperate  zone;  and  yet,  as  soon  as  the 
salmon-berry  begins  to  blossom,  this  mite  of  a  bird 
—  hardly  bigger  than  a  large  moth — flies  thousands 
of  miles  up  the  coast  from  southern  California  or 
Mexico,  and  may  be  found  as  far  north  as  Wrangell 
and  Juneau. 

On  both  sides  of  the  North  American  continent, 


THE  EXPEDITION  TO  ALASKA  193 

from  Vancouver  to  Mount  St.  Elias  and  from  Nova 
Scotia  to  northern  Labrador,  birds  appear  earlier  in 
the  season  than  flowers,  but  the  flowers  soon  over- 
take them.  In  the  first  ten  days  of  June,  the  botan- 
ists of  the  expedition  found  only  violets,  strawberry 
and  salmon-berry  blossoms,  and  the  delicate  white 
or  pink  bells  of  mountain  heather;  but  ten  days  later 
acres  of  meadow-land  were  covered  with  the  blue 
spikes  of  lupine,  and  before  the  first  of  July  the  whole 
Alaskan  coast  was  abloom  with  wild  geranium,  col- 
umbine, Jacob*s-ladder,  iris,  cypripedium,  shooting 
star,  rhododendron,  bluebells,  primroses,  and  forget- 
me-nots 

Up  to  the  time  when  the  members  of  the  Alaskan 
expedition  assembled  in  New  York  to  take  the  train 
for  the  Pacific  Coast,  few  of  the  scientific  men  had 
ever  seen  Mr.  Harriman  and  many  of  them  had  never 
even  heard  his  name.  It  is  interesting,  therefore,  to 
note  the  impression  that  he  made  upon  them  when, 
in  the  close  intimacy  of  steamer  life,  they  had  an 
opportunity  to  make  his  acquaintance. 

I  soon  saw  [says  John  Muir]  that  he  was  uncommon. 
He  was  taking  a  trip  for  rest,  and  at  the  same  time  man- 
aging his  exploring  guests  as  if  we  were  a  grateful,  sooth- 
ing, essential  part  of  his  rest  cure,  though  scientific  ex- 
plorers are  not  easily  managed,  and  in  large  mixed  lots 
are  rather  inflammable  and  explosive,  especially  when 
compressed  on  a  ship.    Nevertheless  he  kept  us  all  in 


194  E.  H.  HARRIMAN 

smooth  working  order;  put  us  ashore  wherever  we  liked, 
in  all  sorts  of  places  —  bays,  coves,  the  mouths  of 
streams,  etc.  —  to  suit  the  convenience  of  the  different 
parties  into  which  we  naturally  separated,  dropping 
each  with  suitable  provisions,  taking  us  aboard  again  at 
given  times,  looking  after  everything  to  the  minutest  de- 
tails; work  enough  to  bring  nervous  prostration  to  ordi- 
nary mortals  instead  of  rest.  All  the  Harriman  family 
were  aboard,  together  with  Mr.  and  Mrs.  Averell  and 
their  daughter  Betty.  Mrs.  Harriman  ably  seconded 
her  husband  in  making  everything  move  harmoniously. 
The  boys  were  very  young,  Roland  only  about  two  or 
three  years  of  age.  One  of  the  telling  sights  that  comes 
to  mind  as  I  write  is  Mr.  Harriman  keeping  trot-step 
with  little  Roland  while  helping  him  to  drag  a  toy  canoe 
along  the  deck  with  a  cotton  string.  The  girls  were 
so  bright  and  eager  to  study  the  wonderful  regions 
passed  through  that  we  were  all  proud  to  become  their 
teachers. 

We  soon  learned  that  Mr.  Harriman  was  not  only  a 
wonderful  manager  of  men,  but  that  he  was  fearless. 
Nothing  in  his  way  could  daunt  him  or  abate  one  jot  the 
vigor  of  his  progress  toward  his  aims,  no  matter  what 
—  going  ashore  through  heavy  breakers,  sailing  un- 
charted fiords,  pursuing  bears,  etc.  .  .  .  Before  I  came 
to  know  him  I  thought,  like  many  others,  that  money- 
making  might  be  one  of  the  springs  of  his  action.  One 
evening  when  the  expedition  was  at  Kadiak  the  scien- 
tists, assembled  on  the  forecastle  awaiting  the  dinner- 
bell,  began  to  talk  of  the  blessed  ministry  of  wealth,  es- 
pecially in  Mr.  Harriman's  case,  now  that  some  of  it  was 
being  devoted  to  science.  When  these  wealth  laudations 
were  sounding  loudest,  I  teasingly  interrupted  them, 
saying:  "I  don't  think  Mr.  Harriman  is  very  rich.  He 
has  not  as  much  money  as  I  have.  I  have  all  I  want  and 
Mr.  Harriman  has  not."   This  saying  somehow  reached 


THE  EXPEDITION  TO  ALASKA  195 

Mr.  Harriman*s  ear,  and  after  dinner,  seating  himself 
beside  me,  he  said:  "I  never  cared  for  money  except  as 
power  for  work.  I  was  always  lucky  and  my  friends  and 
neighbors,  observing  my  luck,  brought  their  money  to 
me  to  invest,  and  in  this  way  I  have  come  to  handle 
large  sums.  What  I  most  enjoy  is  the  power  of  creation, 
getting  into  partnership  with  Nature  in  doing  good, 
helping  to  feed  man  and  beast,  and  making  everybody 
and  everything  a  little  better  and  happier."  And  this 
has  proved  true.  He  earned  the  means  and  inherited 
the  courage  to  do  and  dare  as  his  great  head  and  heart 
directed.^ 

The  first  important  objective  of  the  Harriman 
expedition  w^as  the  famous  Muir  Glacier,  which  is 
situated  at  the  head  of  Glacier  Bay,  about  one  hun- 
dred and  twenty-five  miles  north  of  Sitka.  This 
great  river  of  ice,  which  has  a  surface  area  of  three 
hundred  and  fifty  square  miles  or  more,  descends 
from  the  vast  snow^-fields  on  the  high  mountains 
west  of  Skagway,  and  abuts  on  the  sea  in  a  long  icy 
palisade  which  rises  in  places  to  heights  of  from  two 
hundred  to  two  hundred  and  fifty  feet.  The  Elder 
steamed  into  the  bay  on  the  8th  of  June  and  an- 
chored at  5  P.M.  about  two  miles  ofT  the  glacier  front 
in  the  midst  of  floating  bergs  of  all  sizes  and  shapes. 
Hardly  was  the  anchor  down  when  the  members  of 
the  party  were  startled  by  a  loud  explosive  roar 
which  sounded  like  mufifled  thunder.   ''It  was,"  says 

^  Edward  Henry  Harriman,  by  John  Muir  (Doubleday,  Page  &  Co., 
New  York,  1911),  pp.  35-36.  (Privately  printed.) 


196  E.  H.  HARRIMAN 

Burroughs,  '*the  downpour  of  an  enormous  mass  of 
ice  from  the  glacier's  front,  making  it,  for  the  mo- 
ment, as  active  as  Niagara.  Other  and  still  other 
downpours  followed,  at  intervals  of  a  few  minutes, 
with  deep  explosive  sounds  and  the  rising  of  great 
clouds  of  spray.  We  quickly  realized  that  here  was 
a  new  kind  of  Niagara,  a  cataract  the  like  of  which 
we  had  not  before  seen  —  a  mighty  congealed  river 
that  discharged  into  the  bay  intermittently  in  ice 
avalanches.  The  mass  of  ice  below  the  water-line  is 
vastly  greater  than  that  above,  and  when  the  upper 
portions  fall  away,  enormous  bergs  are  liberated  and 
rise  up  from  the  bottom.  They  rise  slowly  and  ma- 
jestically, like  huge  monsters  of  the  deep,  lifting 
themselves  to  a  height  of  fifty  or  a  hundred  feet 
with  the  water  pouring  off  them  in  sheets,  and  then 
subsiding  and  floating  away  with  a  huge  wave  in 
front.  Nothing  that  we  had  read  or  heard  had  pre- 
pared us  for  the  color  of  the  ice,  especially  of  the 
newly  exposed  parts  and  of  the  bergs  that  rose  up 
from  beneath  the  water  —  its  deep,  almost  indigo 
blue.  Huge  bergs  were  floating  about  that  suggested 
masses  of  blue  vitriol.  The  roar  that  followed  the 
discharge  of  ice  from  the  glacier  constantly  suggested 
the  blasting  in  mines  or  in  railroad  cuts.  The  spray 
often  rose  nearly  to  the  top  of  the  glacier.  Night  and 
day,  summer  and  winter,  this  intermittent  and  ex- 


THE  EXPEDITION  TO  ALASKA  197 

plosive  discharge  of  ice  into  the  inlet  goes  on,  and 
has  gone  on  for  centuries.  When  we  awoke  in  the 
night  we  heard  its  muffled  thunder,  sometimes  so 
loud  as  to  jar  the  windows  in  our  staterooms,  and 
the  swells  caused  by  the  falling  and  rising  masses 
rocked  the  ship"  at  a  distance  of  two  miles. ^  The 
quantity  of  ice  pushed  into  the  sea  every  day  exceeds 
200,000,000  cubic  feet,  and  the  Muir  is  only  one  of 
nine  glaciers  which  discharge  bergs  into  Glacier  Bay. 
In  this  scenically  attractive  and  scientifically 
interesting  environment  the  members  of  the  expedi- 
tion spent  five  or  six  days  studying  the  glaciers, 
climbing  the  mountains,  sketching,  painting,  photo- 
graphing, dredging,  and  making  large  collections  of 
animals  and  birds.  John  Muir,  who  had  visited  this 
part  of  the  coast  several  times  before,  had  many 
suggestions  to  offer  with  regard  to  interesting  excur- 
sions and  trips,  and  "when,"  says  Dr.  Merriam 

he  excited  the  enthusiasm  of  the  hunters  by  a  fairy  tale 
about  the  abundance  of  wolves  in  a  little  snowy  valley 
(''Howling  Valley,"  he  called  it),  eighteen  miles  back 
from  the  front  of  Muir  Glacier,  Mr.  Harriman  promptly 
decided  to  go  there,  notwithstanding  the  long  and  fa- 
tiguing tramp  over  the  ice  and  snow  and  the  necessity  of 
spending  a  night  on  the  glacier.  Nor  was  he  deterred 
when  Muir  himself  declined  to  go,  making  the  clever  ex- 
cuse that  he  was  no  hunter.  The  party  consisted  of  Mr. 

^  John  Burroughs,  in  The  Harriman  Alaska  Expedition^  vol.  i,  pp. 
36-37. 


198  E.  H.  HARRIMAN 

Harriman  and  Doctor  Morris,  Grinnell,  Trudeau,  and 
myself.  The  grip  proved  much  more  severe  than  was  ex- 
p)ected.  After  tramping  sixteen  miles  over  the  glacier, 
the  more  distant  parts  of  which  were  covered  with  snow 
into  which  we  sank  at  first  to  our  ankles  and  later  to  our 
knees,  we  finally  reached  a  point  from  which  we  could 
look  into  the  valley  and  were  disappointed  to  find  it 
completely  buried  in  snow.  For  some  miles  the  increas- 
ing depth  of  the  snow  had  led  us  to  fear  that  this  would 
be  the  case,  but  Mr.  Harriman  was  unwilling  to  turn 
back  until  we  had  actually  seen  the  goal.  Both  going 
and  coming  he,  like  the  rest  of  us,  carried  a  pack 
weighing  about  twenty  pounds,  and  he  was  always 
either  in  the  lead  or  near  the  front.  ^ 

This  trip  over  glacier  ice  to  Muir's  *' Howling 
Valley"  furnished  ample  proof  not  only  of  Mr.  Har- 
riman's  enterprise  as  a  hunter,  but  of  his  indomitable 
spirit  and  great  physical  endurance.  Few  men,  fifty- 
one  years  of  age,  would  have  undertaken  a  tramp  of 
thirty-six  miles  over  a  snow-covered  glacier,  and 
still  fewer  would  have  been  able,  in  competition  with 
younger  men,  to  keep  "always  in  the  lead,  or  near 
the  front."  Mr.  Harriman  was  just  from  an  office 
desk  and  was  not  in  training  for  severe  and  long- 
continued  physical  effort;  and  yet,  with  a  twenty- 
pound  pack  on  his  back,  he  waded  knee-deep  in  snow 
at  or  near  the  head  of  his  party,  and  refused  to  turn 
back  until  he  had  at  least  looked  into  the  snow- 

*  "Recollections  and  Impressions  of  E.  H.  Harriman,"  b>  Dr.  C. 
Hart  Merriam.   (An  unpublished  manuscript.) 


THE  EXPEDITION  TO  ALASKA  199 

buried  ''Howling  Valley"  and  satisfied  himself  that 
it  was  not  the  habitat  of  howling  wolves.  John  Bur- 
roughs afterward  suggested  that  perhaps  all  the 
"howling"  was  done  by  Muir's  imagination!  In  the 
course  of  the  march  the  members  of  the  party  were 
sometimes  roped  together,  to  guard  against  the  dan- 
ger of  falling  into  crevasses,  and  in  the  forty-eight 
hours  of  almost  continuous  tramping  they  had  only 
a  few  hours'  rest  when,  about  midnight,  they  lay 
down  in  their  sleeping-bags  on  the  ice. 

On  the  13th  of  June,  the  expedition  turned  south- 
ward to  Sitka,  spent  there  ''four  humid  days"  and 
then  proceeded  northward  again  to  Yakutat  Bay 
and  Prince  William  Sound.  In  this  part  of  the  voy- 
age the  members  of  the  party  saw  and  enjoyed  the 
most  beautiful  scenery  on  the  whole  Alaskan  coast. 

In  our  northward  journey  [says  Muir]  dark  clouds  hid 
the  mountains  until  we  reached  Yakutat.  Then  the  hea- 
vens opened  and  St.  Elias,  gloriously  arrayed,  bade  us 
welcome,  while  the  heaving,  plunging  bergs  roared  and 
thundered.  Here  we  spent  immortal  days,  studying, 
gazing,  sailing  the  blue  waters,  climbing  the  hills,  gla- 
ciers, and  warm  flowery  islands,  and  considering  the 
abounding  life.  Everybody  was  naturally  enthusiastic, 
busy,  and  happy  to  the  heart.  The  scenery  at  the  head 
of  Disenchantment  Bay  [an  extension  of  Yakutat]  is 
gloriously  wild  and  sublime  —  majestic  mountains  and 
glaciers,  barren  moraines,  bloom-covered  islands  amid 
icy,  swirling  waters,  enlivened  by  screaming  gulls,  hair 
seals,  and  roaring  bergs.  On  the  other  hand,  the  beauty 


200  E.  H.  HARRIMAN 

of  the  southern  extension  of  the  bay  is  tranquil  and  rest- 
ful and  perfectly  enchanting.  Its  shores,  especially  on 
the  eastern  side,  are  flowery  and  finely  sculptured,  and 
the  mountains,  of  moderate  height,  are  charmingly  com- 
bined and  reflected  in  the  quiet  waters.  .  .  .  For  an  hour 
or  two  after  we  left  Yakutat,  we  enjoyed  glorious  vieWvS 
of  Malaspina's  crystal  prairie^  and  of  St.  Elias  and  his 
noble  compeers;  then  down  came  clouds  and  fog,  leav- 
ing orJy  a  dim  little  circle  about  us.  But  just  as  we 
entered  the  famous  Prince  William  Sound,  which  I  had 
so  long  hoped  to  see,  the  sky  cleared,  disclosing  to  the 
westward  one  of  the  richest,  most  glorious  mountain 
landscapes  I  ever  beheld  —  peak  after  peak  dipping 
deep  in  the  sky,  a  thousand  of  them,  icy  and  shining, 
rising  higher  and  higher,  beyond  and  yet  beyond  one 
another,  burning  bright  in  the  afternoon  light,  purple 
cloud  bars  above  them,  purple  shadows  in  the  hollows, 
and  great  breadths  of  sun-spangled,  ice-dotted  waters 
in  front. 

The  nightless  days  circled  away  while  we  gazed  and 
studied,  sailing  among  the  islands,  exploring  the  long 
fiords,  climbing  moraines  and  glaciers,  and  hills  clad  in 
blooming  heather  —  grandeur  and  beauty  in  a  thousand 
forms  awaiting  us  at  every  turn  in  this  bright  and  spa- 
cious wonderland.  But  that  first  broad,  far-reaching 
view  in  celestial  light  was  the  best  of  all.^ 

One  of  the  most  important  geographical  achieve- 

^  The  Malaspina  Glacier,  which  falls  into  the  sea  just  north  of 
Yakutat  Bay,  is  the  most  extensive  body  of  ice  on  the  Alaskan  coast. 
It  is  twenty  miles  long  and  sixty  or  seventy  miles  wide  and  is  fed  by 
the  snow-fields  of  the  Mount  St.  Elias  Range.  Its  surface  area  is 
fifteen  hundred  square  miles  or  more  —  almost  equal  to  that  of  the 
State  of  Delaware  —  and  the  quantity  of  roily,  sediment-charged 
water  which  runs  out  from  under  it  is  so  great  that  the  ocean,  for  a 
distance  of  thirty  miles  from  the  coast,  is  tinged  a  milky  white. 

2  John  Muir,  in  The  Harriman  Alaska  Expedition^  vol.  I,  pp.  130-32. 


THE  EXPEDITION  TO  ALASKA         201 

ments  of  the  expedition  in  this  "wonderland''  of 
Prince  William  Sound  was  the  finding  and  explora- 
tion of  the  Harriman  Fiord,  a  deep  but  hidden  arm 
or  bay  which  opens  off  the  channel  known  as  Port 
Wells  and  which  terminates,  thirteen  miles  farther 
west,  in  the  splendid  Harriman  Glacier.  The  dis- 
covery of  this  deep  concealed  fiord,  which  was  not 
shown  on  the  United  States  Coast  Survey  chart  and 
which  had  never  before  been  navigated  by  any  ves- 
sel, was  almost  accidental. 

On  the  evening  of  June  26th  [says  Dr.  Merriam],  as 
we  were  steaming  out  of  Port  Wells,  we  saw  at  the  head 
of  a  short  arm  on  the  starboard  side  a  very  large  glacier 
which  appeared  to  extend  entirely  across  the  head  of  the 
fiord.  It  was  a  truly  splendid  glacier,  presenting  a  high 
sea  wall  at  least  two  miles  in  length,  and  pushed  out 
into  the  water  much  farther  than  any  we  had  previously 
seen.  Mr.  Harriman  at  once  changed  the  course  of  the 
vessel  and  turned  into  the  fiord.  Approaching  nearer, 
the  most  distant  point  of  land  on  the  left,  which  up  to 
this  time  had  appeared  to  abut  against  the  ice,  was  seen 
to  be  separated  from  it,  revealing  open  water  beyond. 
Going  still  closer  to  examine  the  ice  caves  and  pinnacles 
of  the  glacier  front,  we  were  amazed  to  discover  that  the 
open  water  continued,  stretching  away  for  miles  and 
showing  two  fine  glaciers  in  the  distance.  Every  one 
was  filled  with  eager  excitement  and  anxious  to  con- 
tinue the  exploration.  Mr.  Harriman  asked  the  captain 
to  turn  the  ship  into  the  new  fiord,  but  neither  he  nor 
the  pilot  was  willing  to  assume  the  responsibility  of  nav- 
igating the  unknown  water  in  the  night.  So  Mr.  Harri- 
man himself  took  the  wheel  and  pushed  the  ship  on  to 


202  E.  H.  HARRIMAN 

the  very  head  of  the  fiord,  a  distance  of  about  thirteen 
miles.  A  number  of  new  glaciers  were  discovered,  four 
of  which  had  massive  fronts  shedding  icebergs  into  the 
sea.  Others  came  down  nearly  to  the  water,  while  others 
hung  on  the  towering  faces  of  the  bordering  cliffs.  We 
were  completely  surrounded  by  rugged  snowy  moun- 
tains, presenting  an  impressive  and  desolate  spectacle 
of  rock,  ice,  and  snow.  Then  a  snowstorm  set  in,  shut- 
ting out  the  mountains  while  we  were  still  in  the  new 
fiord,  which  later  was  named  in  honor  of  its  discoverer. 
On  our  way  back,  as  we  turned  the  point  in  front  of  the 
huge  glacier,  the  incoming  tide  caught  the  ship  and 
swung  her  with  great  force  toward  the  ice-wall.  The 
rudder  was  put  hard-a-port,  but  it  was  some  time  before 
the  ship  responded  and  for  a  few  moments  it  looked  as 
if  we  were  going  to  be  crushed  against  the  ice.^ 

The  fearlessness  and  decision  of  character  shown 
by  Mr.  Harriman  in  thus  taking  full  charge  of  the 
ship  and  steering  her  through  thirteen  miles  of  un- 
charted and  unknown  water,  when  the  captain  and 
the  pilot  declined  to  take  the  responsibility  for  such 
risky  navigation,  were  thoroughly  characteristic  of 
the  man.  There  seemed  to  be  nothing  that  he  was 
afraid  to  do,  and  nothing  that  he  did  not  know  how 
to  do. 

We  were  constantly  surprised  [says  Dr.  Merrlam]  by 
hib  physical  strength  and  his  fondness  and  aptitude  for 
out-of-door  pursuits.  He  was  an  expert  swimmer  and 
diver  and  an  enduring  walker  and  mountaineer.  When 
on  the  sea  he  joined  heartily  in  the  daily  sports  on  deck, 

^  "Recollections  and  Impressions  of  E.  H.  Harriman,"  by  Dr.  C. 
Hart  Merriam.    (An  unpublished  manuscript.) 


THE  EXPEDITION  TO  ALASKA         203 

and  when  on  shore  took  part  in  the  most  difficult  and 
fatiguing  expeditions.  Throughout  the  voyage  he  was 
alert,  enthusiastic,  and  venturesome,  and  often  took 
risks  which  many  of  us  thought  a  man  in  his  position 
should  avoid.  If  a  thing  were  worth  seeing,  he  wanted 
to  see  it.  If  a  difficult  or  dangerous  trip  were  to  be  ta- 
ken, by  launch  or  on  foot,  he  was  almost  certain  to  be  in 
the  lead.  His  versatility  was  a  source  of  wonderment  to 
us  all.  During  the  trip  across  the  continent  we  had 
found  out  that  he  was  not  only  a  great  railroad  director 
and  financier,  but  was  also  personally  familiar  with  the 
multitude  of  details  of  railroad  construction  and  opera- 
tion. And  when  we  came  to  the  ocean  voyage,  we  were 
still  more  surprised  to  learn  that  he  was  a  trained  sailor 
and  a  skillful  and  daring  navigator  of  steam  craft.  Run- 
ning the  launch  was  one  of  his  favorite  diversions,  and 
when  so  engaged  he  nearly  always  took  the  wheel.  The 
greater  the  danger  the  surer  he  was  to  take  this  post, 
and  we  were  not  long  in  learning  that  we  were  safest 
when  in  his  hands. 

When  exploring  Yakutat  Bay,  two  parties  were 
landed  on  the  north  shore  to  hunt  and  collect  animals 
and  plants,  and  while  there  were  blockaded  by  drift  ice. 
I  was  a  member  of  one  of  these  parties.  After  three  days 
the  ship  attempted  to  reach  us,  but  was  prevented  by 
the  ice.  Our  hopes  rose  as  we  saw  the  dark  smoke  in  the 
distance,  but  as  it  moved  about  and  then  disappeared 
we  knew  the  open  water  was  a  long  way  off.  On  the 
fourth  day  we  rejoiced  to  again  see  the  steamer's  smoke. 
It  was  in  another  place,  farther  down  the  bay.  It  came 
nearer,  to  the  edge  of  the  drift,  and  stopped  as  before. 
For  a  long  time  we  watched  and  waited,  but  could  see 
nothing.  Finally  some  one  called  out,  and  looking  west- 
erly close  to  the  land  we  were  thrilled  by  the  sight  of  two 
small  boats.  Slowly  and  laboriously  they  came,  picking 
their  way  among  the  loose  ice  in  the  narrow  space  be- 


204  E.  H.  HARRIMAN 

tween  shore  and  the  line  of  grounded  bergs  which  kept 
the  heavy  drift  from  pressing  in.  It  was  a  dangerous  un- 
dertaking, and  when  they  were  near  enough  to  enable 
us  to  distinguish  persons,  we  were  not  surprised  to  see 
Mr.  Harriman  standing  in  the  bow  of  the  first  boat,  di- 
recting her  course.  We  and  our  camp  outfits  were  taken 
aboard,  and  on  the  return  trip  to  the  ship  took  the  more 
direct  but  still  more  hazardous  route  through  the  pack- 
ice,  which  in  the  ocean  swell  constantly  threatened  to 
smash  our  frail  craft. 

This  was  neither  the  first  nor  the  last  time  that  Mr. 
Harriman  took  a  perilous  boat  journey  to  gather  in  ab- 
sent members  of  the  expedition.  Earlier  in  the  season, 
when  a  party  consisting  of  Gilbert,  Muir,  and  Palache, 
who  had  gone  in  a  small  boat  to  explore  the  remoter  gla- 
ciers in  the  main  arm  of  Glacier  Bay,  failed  to  appear  at 
the  appointed  place,  he  became  anxious  for  their  safety, 
took  the  ship  up  the  bay  as  far  as  the  drift  ice  permitted 
and  sent  out  two  launches  in  search.  One  of  these  he 
placed  in  my  charge ;  the  other  he  himself  operated.  We 
went  in  different  directions  through  the  floating  ice,  and 
when  at  six  in  the  evening  I  heard  four  whistles  from  the 
steamer  I  knew  that  he  had  found  them. 

Some  weeks  later,  several  members  of  the  expedition, 
including  George  Bird  Grinnell,  Charles  Keeler,  and 
myself,  went  ashore  on  the  spit  at  the  entrance  of  Port 
Clarence  to  visit  the  Eskimo  who  had  come  there  to 
trade  with  the  whaling  vessels  then  at  anchor  near  by. 
At  the  same  time  Mr.  Harriman,  with  Dr.  Morris  and 
one  or  two  others,  took  one  of  the  launches  and  went  on 
a  visiting  tour  among  the  whalers,  while  our  ship  crossed 
the  bay  to  take  water  at  the  mouth  of  a  small  stream  on 
the  south  shore.  At  about  half-past  six  in  the  afternoon, 
Mr.  Harriman  came  for  us  with  the  launch  and  started 
to  take  us  back  to  the  steamer.  The  distance  proved 
greater  than  we  had  supposed  —  fourteen  miles  —  and 


THE  EXPEDITION  TO  ALASKA         205 

the  wind  blew  so  hard  that  a  strong  sea  was  running. 
Fortunately  we  were  going  with  the  wind.  When  we  had 
reached  a  point  about  midway  between  the  spit  and  the 
south  shore,  we  could  see  only  the  rigging  of  the  whalers 
and  only  the  masts  and  smokestack  of  the  Elder.  A  lit- 
tle later  the  fireman  of  the  launch  announced  that  the 
supply  of  gasoline  was  so  low  that  it  was  doubtful  if  we 
could  reach  the  ship.  Meanwhile  the  wind  had  increased 
to  a  gale,  driving  the  water  in  such  big  waves  that  to  lose 
headway  meant  the  capsizing  of  the  launch  and,  doubt- 
less, the  loss  of  all  on  board.  But  luck  was  in  our  favor. 
The  gasoline  held  out  and  Mr.  Harriman  was  at  the 
wheel.  On  coming  alongside,  the  sea  was  so  high  that  we 
would  have  been  dashed  to  pieces  against  the  vessel  had 
we  attempted  to  run  in  close.  By  means  of  pike-poles 
we  were  kept  from  striking,  and  with  the  aid  of  a  rope- 
ladder  and  the  outstretched  hands  of  the  sailors  most  of 
us  scrambled  aboard.  Mr.  Harriman,  however,  learning 
that  a  party  was  ashore  on  the  neighboring  tundra,  took 
on  a  new  supply  of  gasoline,  and,  instead  of  trusting  the 
task  to  another,  made  two  trips  from  the  ship  to  the 
shore  and  brought  all  the  members  back  in  safety. 
These  trips  were  attended  with  no  little  danger,  the  tak- 
ing on  of  the  party  and  the  turning  of  the  launch  in  the 
gale  requiring  great  skill  in  navigation  to  avoid  disaster. 
It  was  nine  in  the  evening  when  he  returned  with  the 
last  boat-load  and  we  had  supper.^ 

On  the  28th  of  June,  the  Elder  sailed  from  Prince 
William  Sound  and  after  a  short  stop  in  Cook  Inlet 
proceeded  to  the  island  of  Kadiak,  where  the  party 
proposed  to  spend  four  or  five  days  and  where  Mr. 

*  "Recollections  and  Impressions  of  E.  H.  Harriman,"  by  Dr.  C. 
Hart  Merriam.   (An  unpublished  manuscript.) 


2o6  E.  H.  HARRIMAN 

Harriman  hoped  to  get  a  specimen  of  the  largest  of 
all  known  bears. 

Between  Prince  William  Sound  and  Kadiak  there 
was  a  sudden  and  remarkable  change  in  climate  and 
scenery.  The  weather,  under  the  influence  of  the 
Japan  current  —  the  Gulf  Stream  of  the  Pacific  — 
grew  noticeably  warmer;  the  wild  fiords,  glaciers, 
spruce  forests,  and  high,  snowy  mountains  of  the 
mainland  disappeared,  and  in  place  of  them  were 
rounded  hills  tinged  faintly  blue  with  acres  of  wild 
geraniums;  verdant  glades  threaded  by  cascading 
trout  brooks,  and  scenery  that  was  sometimes  so 
beautiful  and  parklike  as  to  suggest  the  work  of  an 
expert  landscape  gardener. 

We  had  come  [says  John  Burroughs]  from  an  arboreal 
wilderness  to  a  grassy  wilderness ;  from  a  world  of  spruce 
forests  to  a  world  of  emerald  heights  and  verdant  slopes. 
Never  had  I  seen  such  beauty  of  greenness,  because 
never  before  had  I  seen  it  from  such  a  vantage-ground 
of  blue  sea.  To  eyes  sated  with  the  wild,  austere  grand- 
eur of  Prince  William  Sound,  the  change  was  most  de- 
lightful. 

On  the  2d  of  July,  the  Elder  made  fast  to  the 
wharf  at  the  village  of  Kadiak,  and  in  bright  sun- 
shine and  a  temperature  of  nearly  70°,  with  birds 
singing  and  flowers  blooming  everywhere,  the  mem- 
bers of  the  expedition  "swarmed  out  of  the  ship  like 
boys  out  of  school "  and  began  climbing  the  ''mighty 


THE  EXPEDITION  TO  ALASKA         207 

emerald  billow"  that  rose  from  the  rear  of  the  vil- 
lage. 

From  the  ship  [says  Burroughs]  it  looked  as  smooth  as 
a  meadow;  but  the  climber  soon  found  himself  knee- 
deep  in  ferns,  grasses,  and  a  score  of  flowering  plants, 
and  now  and  then  pushing  through  a  patch  of  alders  as 
high  as  his  head.  He  could  not  go  far  before  his  hands 
would  be  full  of  flowers,  blue  predominating.  The  wild 
geranium  here  is  light  blue  and  it  tinges  the  slopes  as 
daisies  and  buttercups  do  at  home.  Near  the  summit 
were  patches  of  a  most  exquisite  forget-me-not  of  a  pure, 
delicate  blue  with  a  yellow  center.  It  grew  to  a  height  of 
a  foot,  and  a  handful  of  it  looked  like  something  just 
caught  out  of  the  sky  above.  Here,  too,  was  a  small 
delicate  lady's-slipper,  pale  yellow  striped  with  maroon, 
and  a  dwarf  rhododendron,  its  large  purple  flowers  sit- 
ting upon  the  moss  and  lichen.  The  climber  also  waded 
through  patches  of  lupine  and  put  his  feet  upon  blue- 
bells, Jacob's-ladder,  iris,  saxifrage,  cassiope,  and  many 
other  flowers. 

From  the  village  of  Kadiak,  Mr.  Harriman,  with 
a  native  Russian  guide,  set  out  on  a  bear-hunting 
expedition  in  the  interior  of  the  island,  and  after 
tramping  two  days  among  high,  treeless  mountains 
ten  or  fifteen  miles  back  from  the  coast,  finally  shot, 
on  a  grassy  hillside  above  a  small  lake,  one  of  the 
great  Kadiak  bears  and  a  half-grown  cub.  It  was 
the  only  bear  secured  by  the  expedition  on  the  Alas- 
kan coast  and  was  the  first  animal  of  this  particular 
species  that  had  ever  been  measured  and  photo- 
graphed.  When,  therefore,  Mr.  Harriman,  with  the 


208  E.  H.  HARRIMAN 

members  of  his  party,  celebrated  on  shipboard  a  day 
or  two  later  the  national  holiday  of  July  4th,  he  re- 
ceived the  hearty  congratulations  of  his  scientific 
associates  upon  having  attained  as  a  hunter  one  of 
the  objects  of  his  ambition,  and  upon  having  made 
at  the  same  time  an  important  addition  to  the  col- 
lections of  the  expeditions. 

But  it  was  not  only  Mr.  Harriman  who  had  reason 
to  be  pleased  and  satisfied  with  this  remote  grassy 
island  in  the  waters  of  the  North  Pacific. 

Kadiak  [says  John  Burroughs]  won  a  place  in  the 
hearts  of  all  of  us.  Our  spirits  probably  touched  the 
highest  point  here.  If  we  had  other  days  that  were  epic, 
these  days  were  lyric.  To  me  they  were  certainly  more 
exquisite  and  thrilling  than  any  before  or  after.  I  feel 
as  if  I  wanted  to  go  back  to  Kadiak  —  almost  as  if  I 
could  return  there  to  live  —  so  secluded,  so  remote,  so 
peaceful;  such  a  mingling  of  the  domestic,  the  pastoral, 
the  sylvan,  with  the  wild  and  the  rugged;  such  emerald 
heights,  such  flowery  vales,  such  blue  arms  and  recesses 
of  the  sea,  and  such  a  vast  green  solitude  stretching 
away  to  the  west,  to  the  north,  and  to  the  south.  .  .  . 
Our  stay  of  five  days  in  this  charming  spot  was  a  dream 
of  rural  beauty  and  repose;  warm  summer  skies  above 
us,  green  flower-strewn  hills  and  slopes  around  us,  our 
paths  were  indeed  in  green  pastures  and  beside  still 
waters.^ 

The  Elder  sailed  from  Kadiak  on  the  5th  of  July, 
and  two  days  later,  at  daybreak,  when  the  scientists 

I  John  Burroughs,  in  The  Harriman  Alaska  Expedition,  vol.  I,  pp. 
82,  86, 


THE  EXPEDITION  TO  ALASKA         209 

awoke,  the  first  sounds  they  heard  through  their 
open  windows  were  the  musical  bird  voices  of 
thrushes,  song  sparrows,  finches,  and  warblers  from 
a  green  slope  on  one  of  the  Shumagin  Islands,  off 
which  the  ship  was  anchored.  "  It  is  a  novel  experi- 
ence," says  Burroughs,  "to  wake  up  in  the  morning 
on  an  ocean  steamer  and  hear  bird  songs  through 
your  open  window.  But  this  was  often  our  experi- 
ence on  the  trip." 

After  landing  a  scientific  party  on  Popof  Island,  to 
be  picked  up  later,  the  Elder  steamed  westward 
along  the  Alaska  peninsula;  entered  the  Akutan 
Passage;  touched  at  Dutch  Harbor  on  the  island  of 
Unalaska;  and  finally,  on  the  8th  of  July,  plunged 
into  the  foggy  solitudes  of  Bering  Sea.  On  the  fol- 
lowing afternoon  the  ship  anchored  off  the  island  of 
St.  Paul,  one  of  the  Pribilof  group,  where  the  scien- 
tists of  the  party  went  ashore  to  observe  the  fur  seals 
which  assemble  there  in  thousands  every  summer. 

** According  to  our  original  programme,"  says 
John  Burroughs,  "our  outward  journey  should  have 
ended  at  the  Seal  Islands;  but  Mrs.  Harriman  ex- 
pressed a  wish  to  see  Siberia  and,  if  all  went  well,  the 
midnight  sun.  'Very  well,'  replied  Mr.  Harriman, 
'  we  will  go  to  Siberia  * ;  and  toward  that  barren  shore 
our  prow  was  turned." 

But  the  voyage  came  near  ending  in  a  fatal  dis- 


210  E.  H.  HARRIMAN 

aster  long  before  Siberia  was  reached.  At  eight 
o'clock  that  same  evening,  in  a  dense  fog  off  the 
island  of  St.  Paul,  the  Elder  struck  heavily  on  a 
sunken  ledge. 

We  were  at  supper  [says  Dr.  Merriam],  and  the  ship 
was  going  at  full  speed  when  her  bottom  suddenly  struck 
the  reef.  A  few  seconds  later  she  struck  again  and,  ris- 
ing a  little,  struck  the  third  time  with  a  fearful  bumping, 
rasping  crash.  We  all  fully  believed  that  the  bottom  was 
smashed  and  that  the  vessel  would  sink.  Mr.  Harriman 
was  perfectly  cool.  He  immediately  rose,  told  the  party 
to  remain  inside,  and  went  at  once  on  deck  where  he  as- 
sisted Captain  Doran  in  the  management  of  the  ship. 
Some  one  suggested  that  he  be  taken  off  in  one  of  the 
boats.  After  an  indignant  reply,  he  turned  to  me  with 
the  remark:  "Can  you  conceive  of  such  a  suggestion! 
What  would  a  man  want  to  live  for  if  his  family  were 
drowned?" 

The  accident,  however,  was  not  so  serious  as  it 
threatened  to  be.  The  engines  were  quickly  reversed, 
a  sail  was  hoisted,  and  in  a  few  moments  the  steam- 
er's prow  swung  to  the  right,  and  the  danger  was 
passed.  The  stern  of  the  ship,  which  was  two  feet 
lower  in  the  water  than  the  bow,  had  raked  across 
the  rocks,  but  no  serious  damage  was  done. 

''Some  of  us,"  says  Burroughs,  "hoped  this  inci- 
dent would  cause  Mr.  Harriman  to  turn  back.  Ber- 
ing Sea  is  a  treacherous  sea;  it  is  very  shallow;  it  has 
many  islands,  and  in  summer  it  is  nearly  always 
draped  in  fog.   But  our  host  was  a  man  not  easy  to 


THE  EXPEDITION  TO  ALASKA         211 

turn  back;  in  five  minutes  he  was  romping  with  his 
children  again  as  if  nothing  had  happened." 

The  Elder  reached  the  Siberian  coast  safely  on  the 
lith  of  July  and  anchored  in  Plover  Bay,  a  harbor 
about  a  hundred  miles  southwest  of  Bering  Strait, 
where  there  was  a  small  encampment  of  Eskimos. 
All  the  members  of  the  party  went  ashore  and  spent 
tw^o  or  three  hours  in  walking  about  on  the  conti- 
nent of  Asia,  buying  curios  from  the  natives,  taking 
photographs  of  the  scenery,  and  picking  handfuls 
of  primroses,  Iceland  poppies,  and  forget-me-nots. 
Then,  as  there  was  not  much  else  to  see  or  do,  they 
returned  in  the  early  evening  to  the  ship  and  sailed 
across  Bering  Strait  to  Port  Clarence,  on  the  Alaskan 
coast,  where  a  dozen  American  whaling  vessels  were 
waiting  for  a  chance  to  get  through  the  pack-ice  that 
blocked  the  Strait. 

Port  Clarence,  sixty  miles  from  the  Arctic  Circle, 
was  the  northernmost  point  that  the  expedition 
reached,  and  after  taking  water  there,  the  Elder 
sailed  for  home.  The  return  voyage  down  the  coast 
was  uneventful ;  but  as  many  stops  were  made  —  at 
St.  Matthew's  Island,  Dutch  Harbor,  the  Shumagin 
Islands,  Kadiak,  Yakutat  Bay,  Juneau,  and  other 
places  —  it  was  not  until  the  30th  of  July  that  the 
steamer  finally  arrived  in  Seattle.  She  had  been  gone 
from  there  just  two  months,  and  in  that  time  had 


212  E.  H.  HARRIMAN 

made  a  voyage,  out  and  back,  of  about  nine  thou- 
sand miles. 

The  scientific  results  of  the  expedition  were  in 
every  way  satisfactory.  A  number  of  glaciers  not 
previously  known,  as  well  as  many  others  that  had 
been  vaguely  or  imperfectly  known,  were  mapped 
and  described,  and  much  evidence  was  gathered  of 
changes  that  had  occurred  in  their  length  and  size. 
The  photographs  taken  by  members  of  the  party 
numbered  about  five  thousand  and  constituted  in- 
comparably the  best  series  of  pictures  ever  taken  of 
the  Alaskan  coast.  The  natural  history  collections 
made  were  very  large  and  included  thirteen  genera 
and  six  hundred  species  that  were  wholly  new  to 
science.  More  than  fifty  specialists  were  engaged  to 
work  up  this  mass  of  new  material,  and  twenty-two 
special  papers,  based  on  collections  made  by  the  ex- 
pedition, were  published  in  the  "  Proceedings"  of  the 
Washington  Academy  of  Sciences.  Under  the  aus- 
pices of  the  same  Academy  were  also  published,  in 
thirteen  large  illustrated  volumes,  the  narrative  of 
the  expedition  by  John  Burroughs,  and  eleven  spe- 
cial monographs  by  various  members  of  the  scien- 
tific party,  including  Muir,  Grinnell,  Dall,  Keeler, 
Fernow,  Gannett,  Brewer,  Merriam,  and  Washburn.^ 

*  The  Harriman  Alaska  Expedition,  edited  by  Dr.  C.  Hart  Merriam; 
2  volumes  with  369  illustrations  and  maps.  (Doubleday,  Page  &  Co., 
New  York  1902.) 


THE  EXPEDITION  TO  ALASKA         213 

No  single  expedition  to  the  Alaskan  coast  has  ever 
made  more  important  and  valuable  contributions 
to  the  world's  knowledge  of  that  region. 

In  the  same  year  in  which  Mr.  Harriman  made 
the  trip  to  Alaska,  he  formed  a  syndicate  for  the 
reorganization  of  the  Chicago  &  Alton  Railroad 
Company;  but  inasmuch  as  this  transaction  after- 
ward became  the  subject  of  an  exhaustive  investiga- 
tion by  the  Interstate  Commerce  CommivSsion,  and 
was  widely  misrepresented  and  generally  condemned, 
both  by  the  Commission  and  by  the  public,  it  seems 
best  to  defer  consideration  of  it  until  the  work  and 
the  criticisms  can  be  presented  together  in  a  later 
chapter.^ 

*  See  vol.  II,  chapters  xxvn.  xxviil. 


CHAPTER  VIII 
THE  KANSAS  CITY  SOUTHERN  EPISODE 

IN  the  early  part  of  1899,  when  Harriman's  ener- 
getic work  in  the  reconstruction  of  the  Union 
Pacific  had  begun  to  attract  attention,  and  when  he 
was  generally  recognized  as  a  rising  man  in  the  rail- 
way world,  his  help  and  cooperation  were  solicited 
by  a  group  of  men  in  the  West  who  were  interested  in 
a  railroad  known  as  the  Kansas  City,  Pittsburgh  & 
Gulf,  which  had  fallen  into  financial  difficulties  as 
the  result  of  hasty  original  construction  and  sub- 
sequent bad  management,  and  which  was  greatly  in 
need  both  of  assistance  and  of  competent  advice. 
The  history  of  this  road,  prior  to  Mr.  Harriman's 
connection  with  it,  was  this: 

In  the  year  1889,  a  group  of  Western  capitalists 
and  promoters  obtained  a  charter  for  a  railroad  to 
run  from  Kansas  City  to  Fort  Smith,  Arkansas,  by 
way  of  the  small  Missouri  town  known  as  Nevada. 
It  was  incorporated  under  the  name  of  the  Kansas 
City,  Nevada  &  Fort  Scott  Railway;  but,  for  reasons 
that  it  is  not  necessary  here  to  specify,  little  work 
was  ever  done  on  it,  and  two  or  three  years  later  its 
charter  was  acquired  by  another  group  of  Western 


THE  KANSAS  CITY  SOUTHERN  EPISODE    215 

promoters  and  speculators  headed  by  Arthur  E.  Still- 
well,  of  Kansas  City.  Mr.  Stillwell,  who  had  been 
engaged  for  some  years  in  the  life  insurance  business 
in  Chicago,  moved  to  Kansas  City  in  the  early  eight- 
ies, became  a  prominent  and  successful  real  estate 
operator  there,  organized  the  Missouri,  Kansas  & 
Texas  Trust  Company,  and  eventually  acquired 
both  influence  and  capital.  He  was  not  a  railroad 
builder,  either  by  training  or  by  experience;  but  he 
seems  to  have  been  a  man  of  pleasing  and  persuasive 
personality,  and  he  was  generally  successful  in  rais- 
ing money  for  the  various  enterprises  in  which  he 
became  interested.  He  first  entered  the  railroad 
field  in  1886,  when  he  projected  and  built  around 
Kansas  City  a  circular  railway  known  as  the  ''Belt 
Line,*'  which  was  intended  to  link  together  the  scat- 
tered stations  of  a  number  of  different  roads  which 
had  there  their  terminals.^ 

Encouraged  by  the  success  of  this  enterprise,  he 
conceived  the  idea  of  building  a  through  trunk-line 
from  Kansas  City  to  the  Gulf  of  Mexico  by  way  of 
Pittsburgh  (a  growing  town  in  the  Kansas  coal  re- 
gion), Joplin,  Texarkana,  and  Shreveport.  Kansas 
City,  at  that  time,  had  become  one  of  the  most  im- 
portant grain  and  provision  markets  in  the  United 

^  This  railway  was  subsequently  reincorporated  and  is  now  called 
the  Kansas  City  Terminal. 


2i6  E.  H.  HARRIMAN 

States,  and  there  seemed  every  reason  to  believe 
that  if  a  north-and-south  line  were  built  from  there 
to  tide-water,  it  might  secure  a  large  part  of  the 
export  traffic  of  the  Missouri  River  region,  which 
was  then  going  either  eastward  to  Atlantic  ports,  or 
southward  to  the  Gulf  of  Mexico  by  way  of  the  Illi- 
nois Central. 

In  the  early  nineties,  Mr.  Stillwell  and  a  small 
group  of  Western  speculators  and  promoters  bought 
the  charter  of  the  old  Kansas  City,  Nevada  &  Fort 
Smith  Railway,  changed  its  name  to  the  Kansas 
City,  Pittsburgh  &  Gulf,  and  organized  a  number  of 
construction  companies  to  begin  work  on  the  pro- 
posed line.  Owing,  however,  to  the  panic  of  1893 
and  the  long  period  of  business  depression  that  fol- 
lowed it,  the  promoters  had  difficulty  in  getting 
capital  enough  to  push  the  enterprise  rapidly,  and  it 
was  not  until  the  fall  of  1898  that  the  road  was  nom- 
inally completed  and  put  in  operation  as  a  whole. 
It  then  extended  from  Kansas  City  on  the  Missouri 
River  to  Port  Arthur  on  the  Gulf  of  Mexico  and  had 
a  total  length  of  about  ^'jd>  miles. 

If  this  road  had  been  built  by  practical  railroad 
men  and  solely  with  a  view  to  traffic  possibilities  and 
economy  of  operation,  it  might  perhaps  have  been 
successful;  but  Mr.  Stillwell  and  his  associates  seem 
to  have  aimed  primarily  at  making  it  a  means  of 


THE  KANSAS  CITY  SOUTHERN  EPISODE    217 

land  speculation  rather  than  a  carrier  of  merchan- 
dise. They  ran  it,  therefore,  not  directly  into  the 
towns  that  it  was  intended  to  serve,  but  through 
their  outskirts,  or  at  a  considerable  distance  from 
them,  with  the  expectation,  apparently,  that  the 
towns  would  grow  toward  it,  and  that  large  profits 
might  be  made  through  the  organization  of  land 
companies  and  the  purchase  and  sale  of  real  estate 
In  a  number  of  places,  moreover,  the  road  was  badly 
located  with  reference  to  the  topography  of  the  coun- 
try; it  contained  a  good  many  unnecessary  curves 
and  grades,  and  it  was  built,  generally,  without  due 
regard  to  economy  and  efficiency  of  operation.  Em- 
bankments and  cuttings  were  only  just  wide  enough 
to  hold  the  track  and  permit  the  passage  of  cars; 
gullies  and  ravines  that  should  have  been  crossed  on 
substantial  earthen  fills  were  spanned  by  trestles  or 
light  wooden  bridges ;  freight  and  passenger  stations 
were  little  more  than  shacks  thrown  up  hastily  at 
the  least  possible  expense,  and  shop  facilities,  water 
supply,  crossings,  and  sidings  were  all  more  or  less 
inadequate  for  a  railroad  that  purported  to  be  a 
trunk-line  from  one  of  the  most  important  cities  in 
the  West  to  tide- water. 

It  is  not  surprising,  perhaps,  that  a  road  so  planned 
and  built  should  fail  to  be  remunerative.  The  sepa- 
rate sections  of  it,  as  they  were  completed  and  put  in 


2i8  E.  H.  HARRIMAN 

operation,  were  never  profitable,  and  even  after  it 
had  been  ostensibly  finished,  it  did  not  earn  money 
enough  to  pay  its  operating  expenses  and  meet  its 
obligations.  Early  in  1899,  when  through  trains  had 
been  running  only  a  few  months,  the  company  be- 
came so  involved  in  financial  difficulties  that  it  was 
threatened  with  bankruptcy,  and  a  committee  of 
shareholders  was  formed  in  New  York  for  the  pur- 
pose of  saving  it  if  possible  by  means  of  a  reorganiza- 
tion. But  the  attempt  was  made  too  late.  In  April, 
1899,  the  road  went  into  the  hands  of  receivers  and 
another  reorganization  committee  was  formed  in 
Philadelphia. 

The  managers  of  the  property,  as  the  crisis  in  their 
affairs  developed,  were  anxious,  of  course,  to  get  the 
support  of  some  strong  railway  interest  in  the  neigh- 
borhood, and  as  their  line  connected  at  Kansas  City 
with  the  Union  Pacific,  they  naturally  turned  for 
help  to  Mr.  Harriman.  In  April  or  May,  1899,  after 
receivers  had  been  appointed,  he  was  asked  to  be- 
come a  member  of  the  New  York  reorganization 
committee,  and  as  he  happened  to  own  some  of  the 
company's  stock  he  consented  to  do  so. 

Throughout  the  summer  and  fall  of  1899  the  two 
committees,  one  in  New  York  and  the  other  in  Phila- 
delphia, struggled  with  the  problems  of  the  company 
and  tried,  often  with  great  differences  of  opinion,  to 


THE  KANSAS  CITY  SOUTHERN  EPISODE    219 

straighten  out  its  tangled  affairs  and  put  it  on  a 
sound  and  stable  financial  basis.  The  Philadelphia 
committee  succeeded  at  last  in  securing  the  support 
of  a  majority  of  the  security-holders,  and  in  Novem- 
ber, 1899,  it  formulated  a  plan  of  reorganization 
which  was  eventually  adopted.  In  March,  1900,  a 
new  company,  called  the  Kansas  City  Southern,  was 
incorporated  under  the  laws  of  the  State  of  Missouri, 
and  to  it,  under  foreclosure  proceedings,  was  turned 
over  all  the  property  of  the  old  Kansas  City,  Pitts- 
burgh &  Gulf. 

Meanwhile,  in  the  summer  or  early  fall  of  1899, 
Mr.  Stilhvell  and  his  associates,  without  consulting 
or  notifying  Mr.  Harriman,  sold  all  their  interest  in 
the  property  to  a  group  of  Western  steel  manufac- 
turers headed  by  John  W.  Gates,  of  Chicago.^  Mr. 
Harriman  regarded  this  sale,  in  the  circumstances 
of  the  case,  as  a  virtual  breach  of  trust.  Stilhvell 
and  his  friends  had  asked  him  to  help  them,  and 
then,  without  his  knowledge  or  consent,  had  dis- 

*  Mr.  Gates  and  his  associates  had  never  before  been  actively  en- 
gaged in  railroading,  but  they  were  all  largely  interested  in  the  Ameri- 
can Steel  &  Wire  Company  of  Illinois,  and  that  corporation  had  taken 
a  large  amount  of  the  bonds  of  the  Kansas  City,  Pittsburgh  &  Gulf 
in  payment  for  steel  rails.  It  is  quite  possible,  therefore,  that  they 
bought  control  of  the  road  not  as  a  speculative  venture,  but  rather  as  a 
means  of  protecting  their  own  interests  as  creditors  and  bondholders. 
Five  of  them  —  Gates,  Lambert,  Edenborn,  Ellwood,  and  Pam  — 
were  among  the  incorporators  of  the  Kansas  City  Southern,  and  four 
of  them  became  directors  and  members  of  the  executive  committee. 


220  E.  H.  HARRIMAN 

posed  of  their  interest  in  the  road  and  left  him  in 
the  lurch. 

In  an  address  on  *' Edward  Henry  Harriman," 
delivered  before  the  Finance  Forum  in  New  York  in 
191 5,  Mr.  Otto  H.  Kahn,  referring  evidently  to  this 
episode,  said: 

The  incident  which  I  am  about  to  relate  occurred  in 
1898  or  1899,  at  a  time  when  Mr.  Harriman  was  but  at 
the  threshold  of  his  successes,  and  had  not  yet  acquired 
the  commanding  prestige  which  came  to  him  in  later 
years,  and  which,  when  once  attached  to  a  man's  name 
and  personality,  naturally  adds  very  greatly  to  his  in- 
fluence over  other  people.  At  the  time  I  speak  of,  he  had 
been  invited  to  take  an  interest  in  a  certain  property, 
and  though  not  greatly  caring  for  the  proposition,  had 
accepted.  A  few  months  afterwards,  the  people  who  had 
sought  Mr.  Harriman's  cooperation  suddenly  sold  out 
their  holdings  in  the  property  to  a  group  of  men  who 
thereupon  proceeded  to  assume  the  control  now  right- 
fully theirs,  and  to  substitute  themselves  and  their  ap- 
pointees in  place  of  Mr.  Harriman  and  his  colleagues. 
Having  myself  a  somewhat  indirect  interest  in  the  situa- 
tion, I  had  occasion  to  discuss  it  with  him,  and  referred 
to  the  cessation  of  his  short-lived  connection  with  the 
property,  which  I  took  as  a  matter  of  course.  To  my 
surprise  he  interrupted  me,  calling  out:  "Hold  on.  Not 
so  fast !  I  am  not  through  this  thing  yet,  by  any  means. 
I  can't  be  played  fast  and  loose  with  like  this.  I  did  not 
care  particularly  to  go  into  it,  as  you  know;  but,  having 
been  urged  to  do  so  and  having  done  so,  I  am  in  it  to 
stay." 

I    replied,    "Of  course   you   have   a  just   grievance 
against  the  men  who  have  quit.   Having  asked  you,  of 


THE  KANSAS  CITY  SOUTHERN  EPISODE    221 

their  own  initiative,  to  cooperate  with  them,  it  was  a 
mean  and  improper  act  on  their  part  to  sell  out  without 
first  conferring  and  consulting  with  you.  But  it's  done, 
the  newcomers  are  in  rightful  control,  it's  no  use  mak- 
ing a  fuss,  and  it  seems  to  me  that  the  best,  and  indeed 
the  only  thing  for  you  to  do  is  to  look  pleasant  and  get 
out.  As  a  matter  of  fact,  why  should  you  care?  That 
property  is  of  very  little  interest  to  you." 

He  reiterated  his  view  and  his  determination  not  to 
give  in.  I  said,  ''Well,  what  are  you  going  to  do  about 
it?  They  have  the  right  to  turn  you  out  without  cere- 
mony if  you  do  not  give  way  gracefully."  He  answered, 
"I  don't  know  yet.  I'll  just  stand  pat  and  not  budge, 
and  watch." 

After  a  while  the  newcomers  found  out  that  while  all 
the  others  concerned  accepted  the  situation,  Mr.  Harri- 
man  would  not  quit  without  a  fight;  and,  though  they 
were  clearly  in  a  position  to  win,  as  far  as  their  immedi- 
ate object  was  concerned,  they  hesitated  to  attack  so 
determined  an  opponent.  Things  went  on  in  this  way 
for  several  months,  Mr.  Harriman  retaining  an  attitude 
of  quiet  but  uncompromising  defiance.  .  .  .  One  morn- 
ing he  called  me  on  the  telephone  to  ask  that  I  accom- 
pany him  to  a  conference  at  the  enemy's  headquarters. 
I  went,  somewhat  in  the  capacity  of  a  second  at  a  duel. 
He  gave  me  no  indication  what  the  proceedings  were 
to  be.  The  conference  lasted  three  hours.  Most  of  the 
talking  was  done  by  the  other  side.  Mr.  Harriman  did 
not  threaten,  or  cajole,  or  make  promises.  He  simply 
brought  to  bear  upon  these  men  the  stupendous  force  of 
his  will  and  personality.  When  the  conference  broke  up, 
not  only  was  there  no  longer  any  question  of  his  retiring, 
but  the  newcomers  had  agreed  to  turn  over  to  him  their 
votes  and  proxies  and  let  him  run  the  property. 

Evidently,  Mr.  Gates  and  his  associates,  when 


222  E.  H.  HARRIMAN 

they  were  brought  into  direct  personal  contact  with 
Mr.  Harriman,  concluded  that  the  road  would  be 
more  likely  to  become  prosperous  under  his  manage- 
ment than  under  theirs,  and  they  therefore  proposed 
not  only  to  elect  him  as  a  director,  but  to  make  him 
chairman  of  the  executive  committee.  In  view  of 
the  fact  that  he  was  a  comparatively  small  and  un- 
influential  stockholder,  his  success  in  thus  winning 
the  confidence  and  support  of  his  opponents  must 
be  regarded  as  a  triumph  of  personal  character  and 
ability. 

This  particular  incident  [added  Mr.  Kahn]  especially 
impressed  itself  upon  my  mind  in  all  its  details  because 
it  was  the  first  time  I  had  seen  Mr.  Harriman  in  action. 
I  witnessed  many  similar  cases  in  the  further  course  of 
his  career,  during  which  it  was  my  privilege  to  be  closely 
associated  with  him.  Over  and  over  again  did  I  see  him 
bending  men  and  events  to  his  determination  by  the  ex- 
ercise of  the  truly  wonderful  powers  of  his  brain  and 
will.i 

The  property  of  the  old  Kansas  City,  Pittsburgh 
&  Gulf  Company  was  turned  over  to  its  successor, 
the  Kansas  City  Southern,  on  the  ist  of  April,  1900. 
In  cases  of  bankruptcy  aud  reorganization,  it  was 
customary  at  that  time  to  vest  the  control  of  the 
property,  temporarily,  in  a  specially  appointed 
board  of  managers  known  as  a  "voting  trust." 

^  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  1911), 
PP-  3-7. 


THE  KANSAS  CITY  SOUTHERN  EPISODE    223 

"The  essence  of  a  voting  trust,"  as  described  by  a 
well-known  authority  on  railroad  reorganization, 
"is  the  deposit  of  stock  in  the  hands  of  trustees 
(most  frequently  five  in  number).  These  trustees 
issue  certificates  in  return.  All  dividends  on  the 
stock  are  paid  to  the  holders  of  certificates,  but  all 
the  voting  power  is  exercised  by  the  trustees  as  long 
as  the  trust  endures."  The  object  of  the  trust  is  to 
"avoid  the  dangers  of  fluctuating  and  speculative 
control  at  critical  periods  in  a  railroad's  history.  .  .  . 
It  is  of  supreme  importance  that  a  reorganized  com- 
pany be  well  started  on  its  way  by  men  who  have  an 
interest  in  making  the  reorganizing  plan  perma- 
nently successful,  and  that  conservative  direction  be 
assured  until  danger  of  bankruptcy  be  past."^ 

Aiming  primarily  at  these  objects,  and  following 
the  example  of  the  reorganizers  of  the  Erie,  North- 
ern Pacific,  Reading,  Baltimore  &  Ohio,  and  many 
other  railroad  companies,  the  stockholders  of  the 
Kansas  City  Southern  assigned  all  their  powers,  for 
a  period  of  five  years  from  April  i,  1900,  to  a  very 
strong  voting  trust,  representing  about  equally  the 
friends  of  Mr.  Harriman  and  the  associates  of  Mr. 
Gates  in  the  American  Steel  &  Wire  Company.  Its 
members  were  E.  H.  Harriman,  of  the  Union  Pacific; 

*  Railroad  Reorganization,  by  Stuart  Daggett  (Cambridge,  1908), 
p.  382. 


224  E.  H.  HARRIMAN 

Otto  H.  Kahn,  of  Kuhn,  Loeb  &  Co.,  New  York; 
James  Stillman,  of  the  National  City  Bank,  New 
York;  Louis  Fitzgerald,  president  of  the  Mercantile 
Trust  Company,  New  York;  George  J.  Gould,  presi- 
dent of  the  Missouri  Pacific;  John  W.  Gates,  of  the 
American  Steel  &  Wire  Company,  and  Herman 
Sielcken,  who  represented  a  large  body  of  security- 
holders in  Holland. 

On  the  5th  of  May,  1900,  an  executive  committee 
composed  of  Harriman,  Kahn,  and  five  representa- 
tives of  the  Gates  interests  was  chosen  to  manage 
the  property  under  direction  of  the  trustees,  and 
about  a  week  later  it  organized  by  electing  Harriman 
as  chairman.  In  July,  1900,  Samuel  W.  Fordyce, 
formerly  president  and  later  one  of  the  receivers  of 
the  Kansas  City,  Pittsburgh  &  Gulf,  tendered  his 
resignation,  and  upon  recommendation  of  the  ex- 
ecutive committee  Stuart  R.  Knott,  of  Savannah, 
Georgia,  vice-president  of  the  Plant  System,  was 
elected  in  his  place.  ^ 

The  task  set  before  the  trustees,  the  executive 
committee,  and  the  new  president  of  the  Kansas 
City  Southern  was  one  of  great  if  not  insuperable 
difficulty.  They  had  to  deal  not  with  a  substantially 
built  and  properly  equipped  road,  but  with  one  that 

*  Mr.  Knott  was  a  trained  and  experienced  railroad  man,  who, 
prior  to  his  connection  with  the  Plant  System,  had  been  for  ten  years 
or  more  first  vice-president  of  the  Louisville  &  Nashville. 


THE  KANSAS  CITY  SOUTHERN  EPISODE    225 

had  been  flimsily  put  together  in  sections  by  half  a 
dozen  different  construction  companies;  that  had 
never  been  completely  finished  or  adequately  sup- 
plied with  rolling  stock;  and  that  stood  in  need  of 
capital  betterments  before  it  could  even  be  operated 
with  safety.  In  a  report  made  to  Mr.  Harriman  after 
the  condition  of  the  property  had  been  ascertained, 
President  Knott  described  it  as  follows: 

The  raihvay  properties  acquired  by  the  Kansas  City 
Southern  Railway  Company  were  constructed  in  sec- 
tions during  the  years  from  1888  to  1897.  Contracts 
were  entered  into  with  construction  companies  for  build- 
ing the  road  and  furnishing  equipment.  The  greater 
part  of  the  road  was  built  by  such  construction  com- 
panies, while  other  portions,  consisting  of  logging  or 
lumber  roads  built  for  local  purposes,  were  purchased 
by  the  construction  companies  to  form  a  part  of  the 
through  line.  These  properties  were  generally  hurriedly 
built,  due  regard  not  being  paid  to  permanent  results 
or  efficiency  of  operation,  and  in  that  condition  were 
turned  over  to  the  railway  company,  although  the  con- 
tracts with  the  construction  companies  called  for  a  first- 
class,  single-track,  standard-gauge  railroad.  As  a  re- 
sult, at  the  time  when  the  properties  were  taken  over  by 
the  present  owners,  the  embankments  were  to  a  large  ex- 
tent found  not  to  be  of  the  proper  width;  the  cuts  were 
too  narrow,  and  requisite  ditching  and  draining  were 
lacking.  In  numerous  cases,  long  wooden  trestles  had 
been  constructed  where  a  small  culvert  and  a  permanent 
earthen  embankment  should  have  been  placed,  and 
many  of  these  trestles  were  unsafe  and  required  to  be 
either  rebuilt  or  filled.  The  narrow  banks  were  also  dan- 
gerous; weak  or  temporary  bridges,  unsafe  for  operation, 


226  E.  H.  HARRIMAN 

had  to  be  replaced  with  structures  of  a  character  to  per- 
mit the  movement  of  business;  yards,  sidings,  and  pass- 
ing tracks  were  required ;  freight  and  passenger  stations 
were  inadequate  or  lacking  at  some  of  the  most  impor- 
tant points,  and  new  section  houses,  new  water  stations, 
additional  shop  machinery  and  tools  had  to  be  pro- 
vided.^ 

If  Mr.  Harriman  and  President  Knott  had  had 
funds  enough  and  time  enough,  they  might  perhaps 
have  put  into  satisfactory  condition  even  a  half- 
finished,  patched-up  line  composed  largely  of  "log- 
ging and  lumber  roads  built  hurriedly  for  temporary 
purposes**;  but,  in  the  first  place,  they  had  very  lit- 
tle money  outside  of  the  earnings  of  the  road  itself, 
and,  in  the  second  place,  the  period  of  their  control 
lasted  only  until  April  i,  1905.  It  was  hardly  possi- 
ble, in  five  years,  to  save  out  of  earnings  a  sum  great 
enough  to  pay  for  the  virtual  reconstruction  of  778 
miles  of  road. 

Under  the  plan  of  reorganization  the  new  com- 
pany was  supposed  to  begin  operations  with  an  avail- 
able working  capital  of  about  $3,000,000;  but,  as  a 
matter  of  fact,  the  unsold  treasury  bonds  which 
were  expected  to  yield  that  sum  hardly  sufficed  to 
meet  the  outstanding  obligations  of  the  old  company. 
The  trustees,  upon  assuming  control  of  the  property, 
had  not  only  to  provide  for  the  liquidation  of  car- 

1  Report  of  President  Knott  to  E.  H.  Harriman,  chairman  of  the 
e^tecutive  committee,  February  23,  1905. 


THE  KANSAS  CITY  SOUTHERN  EPISODE    227 

trust  certificates,  receivers*  certificates,  and  other 
prior  liens  of  the  Kansas  City,  Pittsburgh  &  Gulf  to 
the  amount  of  $3,250,000,  but  also  to  complete  and 
pay  for  various  betterments  authorized  or  under- 
taken by  the  receivers,  including  three  modern  steel 
bridges,  over  the  Elk,  Red,  and  Houston  Rivers. 
After  meeting  these  liabilities,  the  trustees  had  no 
available  funds  other  than  those  derived  from  the 
current  earnings  of  the  road.  These,  however,  they 
devoted  wholly  to  reconstructive  work. 

In  the  last  year's  operation  of  the  Kansas  City, 
Pittsburgh  &  Gulf  there  was  a  deficit  of  $3 1 7,000 ;  but 
between  that  time  and  December  31,  1904,  the  new 
managers  of  the  property  increased  its  gross  earnings 
from  $3»593»505  to  $6,450,319  and  its  net  earnings 
from  $9 1 5 ,005  to  $  1 ,90 1 , 1 40.  This  was  equivalent  to 
a  gain  of  $2746  per  mile  in  gross  and  $1259  in  net.^ 

Between  April  i,  1900,  when  Mr.  Harriman  and 
his  associates  assumed  the  management  of  the  road, 
and  April  i,  1905,  when  they  retired,  they  expended 
on  capital  account  $9,692,967,  of  which  amount 
$5,459,269  went  for  betterments,  additions,  and  new 
equipment.^ 

On  the  1st  of  April,  1905,  when  the  term  of  the 
voting  trust  expired,  the  management  of  the  road 

*  Report  of  President  Knott  to  E.  H.  Harriman,  chairman  of  the 
executive  committee,  February  23,  1905. 

*  Report  of  the  board  of  directors  to  the  stockholders,  May  11, 1905. 


228  E.  H.  HARRIMAN 

reverted  to  the  shareholders,  and,  as  the  result  of 
changes  in  the  ownership  of  the  stock,  the  control  of 
the  property  passed  to  other  hands.  In  1900,  Mr. 
Gates  and  his  associates  owned  or  controlled  a  ma- 
jority of  the  shares;  but  five  years  later  the  security- 
holders in  Holland  and  certain  capitalists  in  New 
York  were  found  to  hold  the  balance  of  power,  and 
Gates  and  Harriman  were  displaced.  They  made  no 
contest  for  supremacy,  and  at  the  annual  meeting  of 
stockholders  on  the  17th  of  May,  1905,  the  party 
then  predominant  elected,  without  opposition,  a  new 
board  of  directors,  headed  by  Herman  Sielcken,  the 
American  representative  of  the  Dutch  interests. 
The  new  administration  made  a  sweeping  change  of 
officers  by  electing  J.  A.  Edson  as  president,  H.  R. 
Duval  as  vice-president,  and  William  Coughlin,  for- 
merly of  the  Denver  &  Rio  Grande,  as  general  mana- 
ger. ^  Mr.  Harriman  then  retired  and  soon  afterward 
disposed  of  his  interest  in  the  property. 

The  new  managers,  in  the  first  report  that  they 
made  after  coming  into  power,  drew  a  dark  picture 
of  the  physical  condition  of  the  road  when  it  was 
turned  over  to  them,  and  ascribed  its  imperfections 
to  neglect  of  maintenance ;  but  in  making  this  charge 

^  Mr.  Edson  had  been  general  manager  of  the  Kansas  City,  Pitts- 
burgh &  Gulf  and  its  successor  the  Kansas  City  Southern  from  Janu- 
ary 25,  1899,  to  January  i,  1903.  Mr.  Sielcken  had  been  a  director  of 
the  Kansas  City  Southern  and  also  a  member  of  the  voting  trust. 


THE  KANSAS  CITY  SOUTHERN  EPISODE    229 

they  were  hardly  fair  to  their  predecessors.  If  the 
latter,  in  April,  1900,  had  come  into  possession  of  a 
properly  built  and  adequately  equipped  road,  and 
had  then  allowed  it  to  fall  into  decay,  they  might 
justly  have  been  chargeable  with  neglect;  but  such 
was  by  no  means  the  case.  The  line,  when  they  be- 
came responsible  for  it,  was  —  as  President  Knott 
said  —  ''in  an  unfinished  and  disorganized  state'*; 
and  although  they  had  not  been  able  to  perfect  it, 
they  at  least  turned  it  over  to  Sielcken  and  his  asso- 
ciates in  far  better  condition  than  that  in  which  they 
received  it  from  the  original  builders.  A  road  cannot 
increase  its  gross  earnings  by  56  per  cent  and  its  net 
earnings  by  154  per  cent,  as  the  Kansas  City  South- 
ern did  under  Mr.  Harriman's  management,  without 
making  some  improvement  in  its  physical  condition. 
Certainly,  its  managers  cannot  fairly  be  accused  of 
neglecting  maintenance  if  they  declare  no  dividends, 
*' plough  in"  all  their  earnings,  and  spend  more  than 
a  million  dollars  a  year  for  physical  betterments. 
Doubtless,  the  Kansas  City  Southern,  even  in  1905, 
stood  in  need  of  further  improvement;  but  the  need 
arose  not  from  neglect  of  maintenance,  but  from 
faulty  original  construction,  which  Mr.  Harriman 
and  his  associates  had  not  had  means  enough  or  time 
enough  fully  to  remedy.^ 

*  As  careful  a  writer  as  Edward  S.  Mead  cites  the  Kansas  City 


230  E.  H.  HARRIMAN 

There  is  some  reason  to  believe  that  Mr.  Harriman 
desired  to  have  a  line  from  Kansas  City  to  the  Gulf 
of  Mexico  as  an  additional  outlet  for  the  traffic  of  the 
Union  Pacific,  and  that  he  would  have  retained  con- 
trol of  the  Kansas  City  Southern  in  1905,  if  he  could. 
One  of  his  associates,  who  afterward  held  an  impor- 
tant position  on  the  road  says: 

*' What  he  [Mr.  Harriman]  apparently  wanted,  as 
a  matter  of  strategic  development,  was  a  connection 
in  the  neighborhood  of  Kansas  City,  which  was  and 
is  the  second  primary  grain  market  in  the  United 
States.  The  easy  way  of  accomplishing  this  was  by 
securing  and  improving  the  Kansas  City  Southern. 
I  am  confirmed  in  this  impression  by  my  knowledge 
of  the  fact  that  when  the  control  passed  to  other 

Southern  as  an  extreme  illustration  of  the  evils  of  neglected  mainte- 
nance; but  he  seems  to  have  paid  too  much  attention  to  the  company's 
fifth  annual  report  and  not  enough  to  President  Knott's  description  of 
the  condition  of  the  road  when  he  first  became  connected  with  it. 
{Corporate  Finance,  by  Edward  S.  Mead,  New  York,  1914,  p.  219.) 

Professor  Ripley,  too,  takes  a  fling  at  Mr.  Harriman  by  saying  that 
"when  in  1905  the  voting  trust  on  the  Kansas  City  Southern,  set  up 
in  1900,  expired  by  limitation,  the  stockholders,  coming  into  posses- 
sion of  their  property,  discovered  that  it  was  almost  completely 
gutted."  Inasmuch,  however,  as  the  same  authority,  in  another  place, 
declares  that  "the  Kansas  City,  Pittsburgh  &  Gulf  in  1900  [after  the 
reorganization]  was  physically  rebuilt  and  also  structurally  solidified 
throughout,"  one  assertion  may  be  set  off  against  the  other.  The 
average  reader,  perhaps,  will  find  it  difficult  to  understand  how  a  road 
can  be  "almost  completely  gutted,"  and,  at  the  same  time,  be  "physi- 
cally rebuilt  and  structurally  solidified  throughout."  {Railroads: 
Finance  and  Organization,  by  William  Z.  Ripley,  New  York,  191 5,  pp. 
214  and  405.) 


THE  KANSAS  CITY  SOUTHERN  EPISODE    231 

hands,  he  caused  a  very  exhaustive  survey  and  loca- 
tion to  be  made  of  a  line  between  Kansas  City  and 
Galveston.  Subsequently,  just  before  his  last  trip  to 
Europe,  an  opportunity  was  presented  of  securing 
control  of  the  Kansas  City  Southern  and  he  was  giv- 
ing it  serious  consideration.  If  he  had  lived,  he  would 
doubtless  have  taken  over  the  property.  No  one  had 
a  clearer  idea  of  the  strategic  values  of  railroad  prop- 
erties than  Mr.  Harriman,  or  more  courage  in  seizing 
and  developing  advantageous  positions." 


CHAPTER  IX 

ACQUIREMENT  AND  RECONSTRUCTION  OF 
THE  SOUTHERN  PACIFIC 

AS  the  great  work  of  rebuilding  the  Union  Pa- 
cific progressed,  Harriman  saw  that,  in  order 
to  create  a  trunk-line  from  the  Missouri  River  to  the 
Pacific  that  would  be  capable  of  handling  efficiently 
and  economically  the  increasing  volume  of  trans- 
continental traffic,  it  would  be  necessary  greatly  to 
improve,  if  not  to  rebuild  entirely,  the  Central  Pa- 
cific, which  was  the  link  that  united  the  Ogden  ter- 
minus with  San  Francisco.  By  straightening  curves, 
lowering  grades,  and  using  heavier  rolling  stock,  he 
might  double  the  capacity  of  his  own  line  between 
Ogden  and  Omaha;  but  if  he  could -not  bring  up  to 
the  same  high  level  of  efficiency  the  line  that  gave 
him  his  western  connection,  it  would  be  difficult,  if 
not  impossible,  to  increase  much  the  carrying  capac- 
ity of  the  transcontinental,  system  as  a  whole.  A 
chain  is  no  stronger  than  its  weakest  link,  and  the 
weakest  link  in  the  Omaha-San  Francisco  line  was 
that  from  Ogden  to  Sacramento.  It  was  full  of  short 
curves,  especially  in  the  Sierra  Nevadas  and  in  the 
hilly  region  west  of  Ogden  and  east  of  Reno.    Be- 


THE  SOUTHERN  PACIFIC  233 

tween  the  latter  points  there  were  many  stretches  of 
track  where,  without  prohibitive  expense,  it  was 
possible  not  only  to  eliminate  sharp  curvature,  but 
to  reduce  short  gradients  —  in  some  places  running 
up  to  ninety  feet  to  the  mile  —  which  limited  the 
hauling  capacity  of  locomotives  over  long  distances. 
The  rolling  stock  of  the  company,  too,  as  compared 
with  that  which  Mr.  Harriman  was  introducing  on 
the  Union  Pacific,  was  light  and  of  limited  capacity. 
Unless  this  part  of  the  line  could  be  improved,  the 
betterments  that  were  being  made  east  of  the  Great 
Salt  Lake  would  lose  much  of  their  value,  because 
the  Central  Pacific  could  not  accommodate  half  the 
transcontinental  traf^c  that  the  Union  Pacific  was 
prepared  to  handle  with  ease.  Unfortunately,  Mr. 
Harriman  had  no  control  over  the  Central  Pacific, 
and  the  men  who  did  control  it  were  unable  to  carry 
out  the  plans  that  they  had  made  for  the  reconstruc- 
tion of  the  line,  because,  at  that  time,  they  were  fac- 
ing the  problem  of  financing  the  debt  owed  by  the 
Central  Pacific  to  the  Government,  amounting  with 
interest  to  about  $59,000,000.  Mr.  Harriman  tried 
more  than  once  to  buy  this  road,  with  a  view  to  doing 
with  it  what  he  was  already  doing  with  the  Union 
Pacific;  but  the  Southern  Pacific,  which  owned  it, 
would  not  sell. 

On  the  13th  of  August,  1900,  Collis  P.  Huntington, 


234  E.  H.  HARRIMAN 

who  had  been  practically  the  creator  of  the  Southern 
Pacific,^  and  who  held  four  hundred  thousand  shares 
of  its  stock,  died  after  a  brief  illness  in  the  Adiron- 
dacks.  This  sudden  removal  of  the  greatest  railroad- 
builder  in  the  Southwest  gave  Harriman  an  oppor- 
tunity to  acquire  the  long-desired  link  connecting 
his  western  terminus  at  Ogden  with  San  Francisco. 
In  order,  however,  to  get  it,  he  would  have  to  secure 
control  of  the  whole  Southern  Pacific  system,  by 
which  it  was  owned ;  and  this,  at  first  sight,  seemed 
to  be  impracticable.  The  capital  stock  of  the  South- 
ern Pacific  Company  at  that  time  consisted  of  nearly 
two  million  shares,  which  had  a  market  value  of  al- 
most $100,000,000.  In  order  to  secure  complete  con- 
trol of  it,  the  Union  Pacific  would  have  to  make  a 
cash  investment  of  more  than  $50,000,000,  and  this, 
for  a  company  that  had  only  recently  emerged  from 
bankruptcy  and  that  had  on  hand  a  cash  surplus  of 
less  than  $4,000,000,  seemed  an  almost  impossible 
task. 

Mr.  Harriman,  however,  was  never  daunted  by 
prospective  difficulties.  The  Union  Pacific  Company 
under  his  management  had  increased  its  earnings 
and  greatly  improved  its  credit,  and  while  its  cash 
assets  were  small,   its  resources,  in  the  shape  of 

*  In  association  with  Leland  Stanford,  Charles  Crocker,  and  Mark 
Hopkins. 


THE  SOUTHERN  PACIFIC  235 

unencumbered  property,  were  ver>'  great.  Relying 
upon  his  ability  to  raise  money  by  selling  bonds  on 
the  security  of  these  unmortgaged  assets,  Mr.  Harri- 
man,  almost  immediately  after  the  death  of  Hunt- 
ington, began  to  lay  plans  for  the  acquirement  of  the 
whole  Southern  Pacific  system. 

In  commenting  shortly  afterward  upon  his  pur- 
pose in  so  doing,  the  United  States  Industrial  Com- 
mission of  1 90 1  said: 

In  order  to  attain  a  single  important  end  it  often 
becomes  necessary  to  acquire  an  entire  system  of  rail- 
roads, although  only  a  small  portion  of  that  system  can 
add  directly  to  the  efficiency  of  the  controlling  road. 
Thus,  the  entire  Burlington  system  is  absorbed  by  the 
northern  transcontinental  lines  for  no  other  reason  than 
that  they  may  obtain  a  direct  entrance  Into  Chicago. 
The  Union  Pacific  purchased  control  of  the  Southern 
Pacific  System,  not  because  it  needed  the  additional 
mileage,  but  rather  that  it  might  Indirectly  acquire 
the  Central  Pacific  and  a  direct  outlet  to  the  Pacific 
Coast.  ^ 

This  comment  is  interesting  and  important  for  the 
reason  that  six  years  later  the  Interstate  Commerce 
Commission  cited  the  acquirement  of  the  whole 
Southern  Pacific  System,  not  as  evidence  of  a  desire 
to  get  an  outlet  on  the  Pacific  Coast,  but  as  a  proof 
of  Mr.  Harriman's  alleged  purpose  to  eliminate  com- 

*  Reports  of  the  U.S.  Industrial  Commission,  vol.  19,  pp.  309-10 
and  313;  House  Documents,  vol.  82;  see  also  Railroads:  Finance  and 
Organization^  by  W.  Z.  Ripley,  p.  217. 


236  E.  H.  HARRIMAN 

petition  and  establish  a  monopoly.^  The  different 
views  of  the  same  transaction  taken  by  two  different 
federal  commissions  seem  to  show  that  the  second 
had  a  prejudice  against  Mr.  Harriman,  while  the 
first  was  unbiased. 

Early  in  1901,  Harriman  recommended  to  the 
board  of  directors  of  the  Union  Pacific  Company 
that  the  stockholders  authorize  an  issue  of  $100,000, 
000  in  convertible  bonds,  for  the  purpose  of  "making 
provision  for  the  contemplated  acquisition  of  the 
securities  of  other  companies,"  and  for  the  extension, 
protection,  and  consolidated  operation  of  the  Union 
Pacific  lines.  These  bonds  were  to  be  secured  by  a 
first  mortgage  on  1135  miles  of  improved  road,  and 
by  a  collateral  lien  on  certain  securities  of  the  Oregon 
Short  Line  and  the  Oregon  Railroad  and  Navigation 
Company,  which  were  held  as  free  assets  in  the 
Union  Pacific  treasury  and  which  had  a  par  value  of 
about  $66,000,000.^  The  rate  of  interest  on  the  pro- 
posed bonds  was  "not  to  exceed  four  per  cent,"  but 

1  On  "Consolidation  and  Combination  of  Carriers,"  Reports  of 
Interstate  Commerce  Commission,  vol.  12,  p.  284. 

2  These  securities  consisted  of: 

Bonds  of  Oregon  Short  Line $21,881,000 

Stock  of  Oregon  Short  Line 27,337,650 

Stock  of  Oregon  Railroad  &  Navigation  Conv- 

pany 1 7. 505 .306 

Total $66,723,956 

The  Union  Pacific  had  acquired  the  stock  of  the  two  Oregon  com- 
panies by  exchanging  its  own  stock  for  them. 


THE  SOUTHERN  PACIFIC  237 

in  order  to  make  them  attractive  to  investors  they 
were  made  convertible,  at  any  time  witliin  five  years, 
into  the  common  stock  of  the  Union  Pacific  Com- 
pany at  par. 

On  the  5th  of  February,  1901,  the  board  of  direc- 
tors of  the  Union  Pacific  Company  adopted  a  resolu- 
tion authorizing  the  issue  of  these  bonds  and  giving 
to  Mr.  Harriman,  as  chairman  of  the  executive  com- 
mittee, discretionary  power  to  use  the  money  to  be 
derived  from  them  ''  as  in  his  judgment  may  be  prac- 
ticable and  desirable."  This  was  only  one  of  many 
cases  in  which  the  board  showed  its  perfect  confi- 
dence in  Mr.  Harriman  by  giving  him  almost  un- 
limited discretionary  power.  The  Interstate  Com- 
merce Commission,  therefore,  was  perhaps  justified 
in  saying  afterward  that  he  was  practically  "the 
dominating  spirit  of  the  corporation."  In  all  its 
great  transactions  "he  acted  upon  his  own  initiative, 
and  the  policies  and  purposes  of  the  company  were 
his."  ^  The  advantages  of  this  unified  control  under 
the  direction  of  a  single  master  mind  were  shown  in 
the  subsequent  history  and  almost  unexampled  pros- 
perity of  the  road. 

When,  early  in  May,  the  four  per  cent  convertible 
bonds  were  put  upon  the  market,  they  were  eagerly 

*  Report  of  Interstate  Commerce  Commission  on  "Consolidation 
and  Combination  of  Carriers"  (1907),  p.  278. 


238  E.  H.  HARRIMAN 

taken  by  the  investing  public.  The  security  upon 
which  they  were  based  was  not,  perhaps,  wholly 
adequate,  but  the  conversion  privilege  gave  them  a 
speculative  value  which  more  than  made  up  for  the 
lack  of  absolute  security.  The  increasing  prosperity 
of  the  Great  West,  the  growing  volume  of  trans- 
continental traffic,  and  the  almost  complete  recon- 
struction of  the  Union  Pacific  under  Mr.  Harriman's 
management,  all  indicated  that,  in  the  not-distant 
future,  the  common  stock  of  the  company  would  go 
above  par.  The  purchasers  of  bonds,  therefore,  felt 
reasonably  sure  that  for  every  thousand  dollars  in- 
vested they  would  eventually  be  able  to  get  much 
more  than  that  value  in  the  stock  for  which  they 
could  exchange  their  holdings.  Their  anticipations 
were  fully  realized.  Before  1906,  when  the  conver- 
sion privilege  expired,  every  holder  of  a  thousand- 
dollar  bond  might  have  converted  it  into  ten  shares 
of  Union  Pacific  stock,  salable  in  the  open  market 
at  $1565. 

The  Union  Pacific  Company  began  buying  South- 
ern Pacific  shares  soon  after  Mr.  Huntington's  death; 
but  it  was  not  until  the  following  year  that  it  went 
into  the  market  for  all  that  could  be  had.  To  secure 
control,  however,  without  acquiring  the  four  hun- 
dred thousand  shares  held  by  the  Huntington  estate 
was  practically  impossible,  inasmuch  as  these  shares 


THE  SOUTHERN  PACIFIC  239 

comprised  more  than  twenty  per  cent  of  all  the  stock 
outstanding  and  constituted  the  largest  single  block 
in  existence.  But  it  was  not  easy  to  buy  the  Hunting- 
ton holdings,  for  the  reason  that  they  were  desired 
also  by  many  other  persons,  corporations,  or  inter- 
ests. The  powerful  bankers,  Speyer  &  Co.,  who  were 
the  fiscal  agents  of  the  Southern  Pacific  and  who  had 
close  relations  with  the  Huntington  estate,  were  op- 
posed to  the  sale  of  this  stock  to  the  Union  Pacific 
Company,  as  were  also  many  individuals  in  or  out 
of  the  Southern  Pacific  who  had  railroad  plans  and 
ambitions  of  their  own.  Mr.  Harriman,  however, 
was  a  skillful  and  persistent  negotiator,  and  in  the 
end  he  outbid  or  won  over  all  of  his  competitors. 
Early  in  February,  1901,  Mr.  Edwin  Hawley,  who 
had  been  closely  associated  with  Mr.  Huntington  for 
more  than  twenty  years,  signed  an  agreement  to 
transfer  to  the  Union  Pacific,  on  behalf  of  himself 
and  the  Huntington  estate,  475,000  shares  of  South- 
ern Pacific  stock  having  a  par  value  of  $47,500,000. 
Meanwhile,  Kuhn,  Loeb  &  Co.,  the  bankers  of  the 
Union  Pacific,  had  bought  in  the  open  market,  or  at 
private  sale,  275,000  shares  more,  so  that  on  the  31st 
of  March,  1901,  the  Union  Pacific  was  virtually  in 
possession  of  750,000  shares,  or  thirty-eight  per  cent, 
of  the  outstanding  capital  stock  of  the  Southern 
Pacific  Company.  This  stock  cost  the  Union  Pacific 


240  E.  H.  HARRIMAN 

a  little  more  than  $55.82  per  share  and  therefore  rep- 
resented an  investment  of  nearly  $42,000,000.  Al- 
though it  did  not  constitute  a  majority  of  the  shares 
outstanding,  it  was  sufficient  to  prevent  any  other 
interest  from  getting  control,  and  possession  of  it 
gave  the  Union  Pacific  Company  time  enough  to 
strengthen  its  hold  by  acquiring  more.  This  it  soon 
afterward  did  by  purchasing  150,000  shares  of  the 
common  and  180,000  shares  of  the  preferred,  which 
brought  its  aggregate  holdings  up  to  1,080,000  shares 
or  45.49  per  cent  of  all  the  stock  outstanding.  This, 
for  all  practical  purposes,  united  the  two  companies 
and  brought  them  under  the  same  management,  be- 
cause no  opposing  combination  of  stockholders  that 
could  probably  be  formed  would  be  strong  enough  to 
outvote  a  corporation  that  owned  1,080,000  out  of 
2,374,000  shares. 

The  Southern  Pacific,  when  Mr.  Harriman  and 
his  associates  thus  acquired  control  of  it,  was  the 
greatest  transportation  system  in  the  world.  It  op- 
erated a  continuous  main  line  extending  from  Port- 
land, Oregon,  to  New  Orleans,  Louisiana,  by  way  of 
San  Francisco,  Los  Angeles,  Yuma,  and  El  Paso ;  its 
equally  important  main  line  (the  old  Central  Pacific) 
ran  eastward  across  the  Sierra  Nevadas  to  the  junc- 
tion with  the  Union  Pacific  at  Ogden;  while  it  con- 
nected with  an  extension  into  Mexico  some  hundreds 


THE  SOUTHERN  PACIFIC  241 

of  miles  from  the  Arizona  border,  owned  by  the  same 
interests  that  owned  the  Southern  Pacific.  The  com- 
pany had  also  bought,  leased,  or  absorbed  more  than 
a  dozen  other  railroads  of  less  importance,  so  that  in 
1 90 1  it  owned  or  controlled  nearly  nine  thousand 
miles  of  continuous  track  in  eight  different  States 
or  Territories.  In  view  of  the  fact  that  the  region 
directly  tributary  to  this  great  system  comprised 
nearly  one  third  of  the  total  area  of  the  United  States, 
Mr.  Harriman  was  perhaps  justified  in  saying,  when 
the  wisdom  of  the  purchase  was  afterward  ques- 
tioned, "We  have  bought  not  only  a  railroad,  but  an 
empire."  The  company,  moreover,  which  furnished 
transportation  to  this  ''empire,"  had  two  or  three 
steamship  lines  of  its  own,  which  connected  its  land 
lines  on  the  east  with  Havana  and  New  York,  and  on 
the  west  with  Yokohama,  Shanghai,  and  the  princi- 
pal ports  of  the  Orient. 

The  traffic  of  the  Southern  Pacific,  at  that  time, 
was  large  and  diversified.  As  a  transcontinental 
system  it  carried  from  ocean  to  ocean  a  great  amount 
of  through  freight,  while,  at  the  same  time,  it  gath- 
ered up  along  its  own  lines  quantities  of  merchandise, 
locally  produced,  which  it  turned  over  to  other  roads 
for  distribution.  In  1901,  for  example,  it  moved 
2,825,000  tons  of  forest  products;  1,263,000  tons  of 
grain;  560,000  tons  of  cotton;  nearly  1,000,000  tons 


242  E.  H.  HARRIMAN 

of  fruit  and  vegetables;  3,000,000  tons  of  manufac- 
tured articles;  and  6,000,000  tons  of  miscellaneous 
products,  all  of  which  originated  in,  or  was  carried  to, 
the  region  traversed  by  its  lines.  No  other  railroad 
in  the  West  had  a  better  balanced  traffic,  or  was  bet- 
ter able  to  make  money  out  of  local  business  alone. 
Its  principal  connection,  the  Union  Pacific,  was  es- 
sentially a  through  trunk-line  and  had  to  gef  its 
profits  mainly  from  transcontinental  traffic;  but  the 
Southern  Pacific,  while  getting  its  due  share  of 
through  freight,  transacted  also  a  large  and  profita- 
ble local  business,  originating  in  the  territory  di- 
rectly tributary  to  its  many  lines  and  branches.  Its 
gross  earnings,  in  the  year  when  the  Union  Pacific 
acquired  control  of  it,  were  $77,729,000;  but  its  op- 
erating expenses  were  large,  it  had  a  funded  debt 
of  nearly  $350,000,000,  and  it  had  never  paid  a 
dividend. 

Although  the  physical  condition  of  the  road  com- 
pared favorably  with  that  of  other  Western  lines,  it 
fell  far  short  of  the  standard  established  by  Mr.  Har- 
riman  in  the  reconstruction  of  the  Union  Pacific. 
Six  thousand  miles  of  the  system  had  rails  weighing 
only  sixty  pounds  to  the  yard;  less  than  eight  hun- 
dred miles  had  rails  that  exceeded  seventy-five 
pounds  to  the  yard,  and  on  the  main  lines  alone  there 
were  more  than  two  hundred  miles  of  timber  trestles 


THE  SOUTHERN  PACIFIC  243 

and  bridges,  many  of  which  would  have  to  be  re- 
placed with  more  substantial  and  durable  structures. 
The  part  of  the  system  whose  reconstruction  pre- 
sented most  serious  engineering  difficulties  was  that 
between  Ogden  and  Reno,  where  grades  of  forty-five 
to  ninety  feet  to  the  mile  were  common,  and  where 
the  curves  were  so  sharp  and  so  frequent  that  in  a 
distance  of  three  hundred  and  seventy-three  miles 
the  road  made  more  than  thirty-six  complete  circles. 
It  was  this  part  of  the  system,  in  particular,  that  Mr. 
Harriman  was  most  desirous  of  improving,  because 
upon  it  depended  largely  the  prosperity  of  his  own 
line.  The  Central  Pacific  must  be  made  capable  of 
carrying  from  San  Francisco  to  Ogden  as  much 
freight  as  the  reconstructed  Union  Pacific  could 
carry  from  Ogden  to  Omaha.  To  this  part  of  the 
line,  therefore,  Mr.  Harriman  gave  particular  and 
immediate  attention.  He  had  been  over  it  several 
times,  and  had  a  good  general  idea  of  its  defects  and 
needs;  but  in  order  to  plan  the  reconstruction  of  it 
with  all  the  knowledge  that  could  be  obtained,  he 
summoned  to  New  York  for  a  conference  Mr.  Julius 
Kruttschnitt,  general  manager  of  the  system,  who 
was  a  railroad  engineer  by  education  and  training, 
who  had  been  connected  with  the  road,  as  man- 
ager or  assistant  manager,  for  sixteen  years,  and 
who    presumably  was   better  acquainted  with  its 


244  E.  H.  HARRIMAN 

physical  condition  than  was  any  other  official. 
Mr.  Kruttschnitt,  who  then  knew  Mr.  Harriman 
only  slightly,  gave  afterward  the  following  account 
of  the  conference: 

We  tried  to  discuss  our  business  at  the  office,  but  Mr. 
Harriman  was  too  frequently  interrupted  by  callers.  He 
asked  me  to  his  house  that  night  to  dine.  After  dinner 
he  called  for  blue-prints,  maps,  and  statistics  covering 
the  contemplated  reconstruction  work  in  Nevada  and 
Utah.  He  asked  innumerable  questions  with  great  rapid- 
ity, always  touching  the  crucial  points.  Frequently  he 
would  not  wait  for  me  to  finish  a  sentence,  but  would 
dash  off  on  another  question.  He  wanted  to  know  the 
advantages  of  one  method  over  another;  the  economies 
to  be  effected,  the  increase  in  capacity  to  be  derived, 
etc.,  etc.,  etc.  The  swiftness  with  which  he  covered  the 
plans  was  astonishing.  We  finished  the  discussion  in  less 
than  two  hours,  and  thereupon  he  told  me  to  be  at  the 
board  room  next  morning  when  there  was  to  be  a  meet- 
ing of  the  executive  committee. 

The  plans  called  for  an  expenditure  of  $18,000,000 
and  I  supposed  that  there  would  be  no  end  of  arguing 
and  talking,  which  would  result  in  the  approval  of  only 
a  part  of  the  work.  However,  Mr.  Harriman,  in  a  few 
words,  clearly  explained  to  the  committee  the  general 
scheme,  what  it  would  cost  and  the  advantages  that 
would  follow,  and  recommended  the  approval  of  the 
entire  work.  It  was  approved  without  dissent.  Evi- 
dently he  had  absorbed  enough  in  that  two  hours'  talk 
with  me  to  satisfy  himself  what  ought  to  be  done  and  to 
approve  the  whole  thing.  As  I  left  for  the  West,  I  won- 
dered what  manner  of  man  it  was  who  in  a  few  hours' 
talk  could  digest  the  details  of  an  $18,000,000  recon- 
struction work  along  a  thousand   miles  of  railroad 


THE  SOUTHERN  PACIFIC  245 

through  a  mountainous  country,  expound  the  general 
principles  of  the  plan  to  his  executive  associates  in  the 
course  of  a  few  minutes,  and  obtain  the  seal  of  financial 
approval.  I  asked  him  what  speed  we  should  make  — 
over  what  period  of  time  we  should  spread  the  expendi- 
ture. He  replied,  "Spend  it  all  in  a  week  if  you  can." 

The  virtual  reconstruction  of  the  Central  Pacific, 
under  the  direction  of  Mr.  Kruttschnitt  and  the  im- 
mediate supervision  of  Chief  Engineer  Hood,  began 
at  once  and  was  finished  in  less  than  three  years. 
Some  conception  of  the  magnitude  of  the  task  may 
be  gained  from  the  fact  that  it  involved  the  complete 
abandonment  of  three  hundred  and  seventy-three 
miles  of  the  old  line  and  the  substitution  for  it  of 
three  hundred  and  twenty-two  miles  of  new  track 
built  in  new  and  better  locations.  This  was  about 
equivalent  to  the  construction  of  an  entirely  new 
railroad  from  Boston,  Massachusetts,  to  Washing- 
ton, D.C.  The  engineering  difficulties,  however,  in 
the  mountainous  regions  of  Utah  and  Nevada,  were 
far  more  serious  than  they  would  be  in  the  com- 
paratively level  country  lying  between  eastern  Mas- 
sachusetts and  the  District  of  Columbia. 

As  the  result  of  these  changes  of  location,  the  new 
line  was  about  fifty  miles  shorter  than  the  old ;  it  had 
thirteen  thousand  degrees  less  of  curvature,  and  its 
maximum  grades  were  reduced  from  an  average  of 
forty-nine  to  ninety  feet  per  mile  to  an  average  of 


246  E.  H.  HARRIMAN 

twenty-one  feet  per  mile.  On  the  old  line  there  were 
many  curves  of  eight  and  ten  degrees,  while  on  the 
new  the  sharpest  curve  did  not  exceed  four  degrees. 
The  saving  in  grade  rise,  going  either  east  or  west, 
was  about  three  thousand  vertical  feet,  and  was 
equivalent  to  more  than  sixty  miles  of  continuous 
grade  of  fifty  feet  to  the  mile. 

The  most  remarkable  and  perhaps  the  most  dif- 
ficult achievement  in  this  reconstruction  of  the  Cen- 
tral Pacific  was  the  building  of  the  so-called  Lucin 
cut-off  across  the  Great  Salt  Lake.  The  old  line  of 
the  road  ran  around  the  northern  end  of  the  lake, 
across  two  mountain  ranges,  and  through  a  very 
wild  and  rugged  country  where  it  was  practically 
impossible  to  get  easy  grades,  or  eliminate  sharp  and 
frequent  curves.  This  part  of  the  road,  as  originally 
built,  varied  in  elevation  from  4200  to  4900  feet 
above  the  sea-level  and  contained  maximum  curva- 
tures of  ten  degrees  and  grades  as  steep  as  ninety  feet 
to  the  mile.  Very  little  of  the  track  between  Ogden 
and  Lucin  was  either  straight  or  level,  and  the  topog- 
raphy of  the  whole  region  was  such  that,  for  a  dis- 
tance of  one  hundred  and  forty-seven  miles,  it  was 
difficult,  if  not  impossible,  to  find  a  location  that 
would  be  much  better.  When  Mr.  Harriman  ac- 
quired control  of  the  Central  Pacific,  he  decided  that 
this  part  of  the  line  would  have  to  be  abandoned 


THE  SOUTHERN  PACIFIC  247 

altogether,  and  as  there  seemed  to  be  no  other  satis- 
factory route  around  the  lake,  he  determined  to  go 
directly  across  it.  The  idea,  however,  was  not  his 
own.  Mr.  William  Hood,  the  chief  engineer  of  Collis 
P.  Huntington,  had  suggested  it,  some  years  before, 
and  had  even  drawn  plans  for  an  air  line  across  the 
lake  on  embankments  and  trestles;  but  the  estimated 
cost  of  the  work  was  very  great,  and  Mr.  Huntington 
had  only  begun  it.  Mr.  Harriman,  however,  soon 
satisfied  himself  that  the  saving  which  might  be 
made  in  the  running  of  trains  would  cover  liberal 
interest  on  the  cost  of  the  improvement,  and  he  there- 
fore directed  Mr.  Kruttschnitt  to  complete  the  con- 
struction of  the  cut-off  at  once.  It  proved  to  be  a 
task  of  tremendous  difficulty.  Although  the  greatest 
depth  of  the  Great  Salt  Lake  was  only  thirty-two 
feet,  it  had  a  very  insubstantial  and  treacherous  bot- 
tom, and  many  times  in  the  progress  of  the  work  the 
fills  and  trestles  seemed  about  to  be  wholly  swallowed 
up  in  abysses  of  quicksand  and  mud.  But  persistence 
and  unfaltering  resolution  won  out  at  last,  and  on  the 
26th  of  November,  1903,  Mr.  Harriman  and  fifty 
prominent  officials  of  the  Pacific  roads  assembled  at 
Ogden  to  celebrate  the  completion  of  the  great  under- 
taking. By  the  building  of  this  cut-off,  the  maximum 
grades  between  Ogden  and  Lucin  were  reduced  from 
ninety  feet  per  mile  to  twenty-one  feet  per  mile ;  four 


248  E.  H.  HARRIMAN 

thousand  degrees  of  curvature  were  eliminated,  and 
the  distance  between  the  two  points  was  shortened 
from  one  hundred  and  forty-seven  miles  to  about 
one  hundred  and  three  miles.  The  cut-off,  when 
completed,  was  only  three  tenths  of  a  mile  longer 
than  an  air  line.  The  cost  of  the  improvement  was 
nearly  $9,000,000,  a  large  part  of  which  sum  was 
spent  in  building  twenty-seven  miles  of  fills  and 
trestles  across  the  lake  from  Lakeside  to  Promon- 
tory. 

In  discussing  the  savings  made  by  this  cut-off,  an 
official  of  the  Southern  Pacific  Company  said  in 
1917: 

One  hundred  and  ten  million  tons  of  freight  have 
passed  over  the  Lucin  cut-off  since  its  completion,  and 
this,  in  terms  of  average  car-loading,  would  take  about 
4,000,000  cars,  making  a  continuous  train  37,000  miles 
long,  or  enough  to  reach  one  and  a  half  times  around  the 
earth.  Had  this  freight  been  hauled  over  the  old  line, 
it  would  have  necessitated  the  running  of  172,000,000 
additional  car  miles  and  additional  work  equivalent  to 
lifting  a  million  carloads  a  mile  in  the  air.^ 

The  main  line  of  the  Southern  Pacific,  from  New 
Orleans  to  San  Francisco,  ran  through  a  country 
that  was  comparatively  open  and  level,  so  that  re- 
construction of  it  involved  fewer  engineering  dif- 
ficulties than  those  presented  by  the  Central  Pacific 

*  Railway  Age  Gazette,  November  2,  1917. 


THE  SOUTHERN  PACIFIC  249 

division  between  Ogden  and  Reno.  It  needed,  how- 
ever, almost  everywhere,  extensive  betterments  in 
the  shape  of  heavier  rails,  new  cross-ties,  better  bal- 
lasting, longer  sidings,  and  more  substantial  culverts 
and  bridges.  These  improvements  Mr.  Harriman 
began  at  once  to  make,  and  in  the  first  two  years 
after  he  acquired  control,  he  spent  on  the  main  line 
of  the  Southern  Pacific  (apart  from  the  Central  Pa- 
cific division)  more  than  $20,000,000.  All  the  avail- 
able net  earnings  of  the  road  were  devoted  to  better- 
ments, and  no  dividends  were  paid,  even  on  the 
preferred  stock,  until  1905. 

Reconstruction  work  on  the  Southern  Pacific  did 
not  differ  essentially  from  that  on  the  Union  Pacific, 
and  it  is  perhaps  unnecessary,  therefore,  to  describe 
it  in  detail.  Suffice  it  to  say  that  during  the  period  of 
Mr.  Harriman's  administration  373  miles  of  the  old 
main  line  were  abandoned  altogether  and  322  miles 
were  rebuilt  in  better  locations;  new  and  heavier 
rails  were  laid  on  4481  miles  of  track;  27,000,000  new 
cross-ties  were  substituted  for  old;  nearly  1000  miles 
of  track  were  ballasted,  or  reballasted  with  better 
material,  and  about  30  miles  of  wooden  culverts, 
trestles,  and  bridges  were  replaced  with  earthen 
embankments,  or  permanent  structures  of  concrete 
or  steel.  Seven  million  dollars  were  spent  in  building 
new  sidings,  or  extending  those  already  in  existence; 


250  E.  H.  HARRIMAN 

$2,600,000  in  providing  a  second  main  track  where 
the  traffic  was  densest;  $6,300,000  in  rebuilding  tres- 
tles and  bridges,  and  nearly  $14,000,000  in  purchas- 
ing terminal  or  other  real  estate  and  the  erection  of 
new  terminal  buildings. 

The  most  important  piece  of  engineering  work 
done  on  the  main  line,  and  the  only  one  comparable, 
in  cost  and  magnitude,  with  the  famous  Lucin  cut- 
off, was  the  so-called  Bay  Shore  cut-off,  a  short  and 
nearly  straight  line  which  greatly  improved  the  ap- 
proach to  San  Francisco.  The  old  single-track  road, 
which  was  built  in  1863,  ran  into  the  city  on  the 
western  side  of  the  San  Bruno  Mountain  by  way  of 
Baden  and  Ocean  View.  From  San  Bruno  to  the 
terminal  it  was  only  eleven  miles  long,  but  in  that 
distance  it  had  796  degrees  of  curvature,  and  rose  to 
a  height  of  292  feet  with  a  maximum  grade  of  158 
feet  to  the  mile.  As  an  approach  to  San  Francisco  it 
had  long  been  inadequate  and  unsatisfactory;  but 
the  city,  in  the  course  of  forty  years,  had  grown  up 
around  it  to  such  an  extent  that  it  was  practically 
impossible  to  widen  the  right  of  way,  eliminate 
curves,  or  reduce  the  steep  grades.  Mr.  Harriman 
decided  to  abandon  it  altogether  and  construct  an 
entirely  new  double-track  line  on  the  eastern  side  of 
the  San  Bruno  Mountain  along  the  shore  of  San 
Francisco  Bay.    The  building  of  this  cut-off  was  a 


THE  SOUTHERN  PACIFIC  251 

very  difficult  piece  of  work,  inasmuch  as  it  involved 
extensive  grading,  the  building  of  a  number  of  new 
bridges,  and  the  digging  of  five  tunnels  whose  ag- 
gregate length  was  nearly  ten  thousand  feet;  but  it 
saved  2.65  miles  in  distance,  eliminated  592  degrees 
of  curvature,  lowered  the  extreme  elevation  from 
292  feet  to  20  feet,  and  reduced  a  maximum  grade  of 
158  feet  to  less  than  16  feet  per  mile.  The  cost  of  this 
improvement,  including  bridges,  tunnels,  and  right 
of  way  for  a  four-track  road,  was  $9,273,055,  or  more 
than  $800,000  per  mile;  but  it  gave  the  Southern 
Pacific  easy  access  to  the  heart  of  the  city  and  fur- 
nished it  with  better  terminal  facilities  than  it  had 
ever  before  enjoyed. 

The  most  important  and  costly  piece  of  new  con- 
struction in  southern  California  was  the  sixty-mile 
cut-off  on  the  main  line  between  Burbank  and  Mont- 
alvo.  Like  all  of  Mr.  Harriman's  improvements  it 
was  intended  to  eliminate  curves  and  heavy  grades. 
The  old  road,  by  way  of  Saugus,  was  unnecessarily 
long  and  roundabout  and  had  a  maximum  grade  of 
116  feet  to  the  mile.  The  new  line,  by  way  of  the 
Santa  Susana  tunnel,  saved  seven  miles  in  distance 
and  2276  degrees  of  curvature;  lessened  the  extreme 
elevation  by  51 1  feet,  and  reduced  the  1 16-foot  grade 
to  a  maximum  grade  of  less  than  53  feet. 

The  total  amount  spent  on  the  Southern  Pacific 


252  E.  H.  HARRIMAN 

System  for  line  changes,  grade  reductions,  and  other 
similar  improvements  during  the  period  of  Mr.  Har- 
riman's  administration  was  approximately  thirty 
million  dollars,  and  two  thirds  of  this  sum  was  used 
in  building  the  three  principal  cut-offs,  namely, 
Lucin,  Bay  Shore,  and  Montalvo.  Twenty  million 
dollars  seems  a  great  expenditure  for  track  improve- 
ment in  only  three  places;  but  the  saving  in  operating 
expenses  which  these  betterments  made  possible  was 
equivalent  to  from  eight  to  ten  per  cent  interest  on 
the  money  invested  in  them. 

The  most  important  requirement  of  the  Southern 
Pacific,  next  to  track  improvement,  was  better  and 
heavier  rolling  stock.  Twenty-five  per  cent  of  its 
locomotives  and  twenty-four  per  cent  of  its  freight 
cars  were  more  than  sixteen  years  old,  and  very  few 
were  of  the  largest  capacity.  The  average  weight  of 
the  locomotives  on  their  drivers,  for  example,  was 
only  40.62  tons,  and  the  average  capacity  of  the 
freight  cars  was  less  than  27  tons.  By  purchasing 
540  new  locomotives  of  greater  power  and  8869  new 
freight  cars  of  larger  size,  Mr.  Harriman  brought  the 
average  engine  weight  up  to  ^2  tons  and  the  average 
car  capacity  up  to  37.58  tons.  At  the  beginning  of 
the  Harriman  administration,  the  freight  cars  owned 
by  the  road  could  carry,  at  a  single  trip,  about  959, 
000  tons,  while  at  the  end  of  it  the  company's  cars 


THE  SOUTHERN  PACIFIC  253 

had  an  aggregate  capacity  of  1,633,000  tons.  In  the 
same  period,  510  new  coaches  of  larger  size  and  better 
design  were  added  to  the  passenger  equipment,  and 
the  water  service  on  the  Atlantic  and  Pacific  Oceans 
was  improved  by  the  expenditure  of  nearly  $9,000, 
000  for  new  steamers.  All  together,  the  money  in- 
vested in  new  rolling  stock  and  floating  equipment, 
after  the  Union  Pacific  Company  acquired  control  of 
the  road,  amounted  to  more  than  $41,000,000. 

One  of  the  most  valuable  improvements  made  to 
the  Southern  Pacific,  upon  the  personal  initiative  of 
Mr.  Harriman,  was  the  installation  of  a  very  perfect 
system  of  automatic  block  signals.  Up  to  1901,  very 
little  of  this  work  had  been  done,  and  on  the  nine 
thousand  miles  of  the  Southern  Pacific  system  there 
w^ere  less  than  fifty  miles  of  block-signaled  track. 
Mr.  Harriman,  at  a  cost  of  $2,835,000,  provided 
automatic  signals  for  nearly  three  thousand  miles  of 
track,  and  thus  ensured  the  safety  of  moving  trains 
on  practically  the  whole  of  the  main  line,  including 
the  Central  Pacific  division  from  Ogden  to  Reno. 
In  describing  these  signals,  Mr.  Kruttschnitt  said: 

They  notify  trains  of  danger  ahead  or  danger  behind. 
They  are  maintained  at  safety  by  an  electric  current 
sent  through  the  rails,  and  anything  that  breaks  the  con- 
tinuity of  that  current  sets  the  signal  at  danger.  If  a 
rail  breaks,  if  a  switch  is  left  open,  or  if  an  iron  bar  or 
rail  is  laid  across  the  track  for  the  purpose  of  wrecking 


254  E.  H.  HARRIMAN 

a  train,  the  automatic  signal  gives  due  warning.  The 
signal  is  set  at  danger  also  if  there  is  a  train  ahead,  or  if 
a  car  has  escaped  from  a  siding  and  run  on  to  the  main 
track.  Protection  is  afforded,  therefore,  not  only  against 
collisions,  but  against  broken  rails,  open  switches,  wash- 
outs, landslides,  and  obstructions. 

The  result  of  the  installation  of  this  system  of 
block  signaling  on  the  Harriman  lines  was  a  great 
decrease  in  the  number  of  train  accidents  —  a  de- 
crease that  amounted  in  some  cases  to  more  than 
one  half.  Employees,  and  especially  engineers,  were 
trained  to  observe  signals  attentively,  and  ^'sur- 
prise" experiments  were  frequently  made  to  test 
their  vigilance.  If,  in  spite  of  all  precautions,  acci- 
dents occurred,  no  attempt  was  ever  made  to  conceal 
the  facts.  On  the  contrary,  boards  of  inquiry  were 
appointed  to  fix  the  responsibility,  and  representa- 
tives of  the  public,  including  even  local  newspaper 
men,  were  invited  to  serve  on  these  boards  and  to 
assist  the  railroad  officials  in  making  the  investiga- 
tions. To  such  a  pitch  of  perfection  was  this  system 
of  safeguards  carried  that,  in  1 9 14,  the  Harriman 
gold  medal  of  the  American  Museum  of  Safety  was 
awarded  to  the  Southern  Pacific  as  the  road  that  had 
done  most  to  prevent  accidents  and  protect  the  lives 
of  passengers.  In  presenting  the  medal,  President 
Williams  referred  to  the  fact  that  the  percentage  of 
accidents  on  the  Southern  Pacific  had  been  reduced 


THE  SOUTHERN  PACIFIC  255 

by  two  thirds,  and  that  in  the  preceding  five  years 
not  a  single  passenger  had  been  killed.  In  receiving 
the  medal,  Mr.  Kruttschnitt,  chairman  of  the  execu- 
tive committee,  said : 

During  the  year  ended  June  13,  1913,  the  company's 
locomotives  ran  59,738,000  miles  —  a  figure  too  large  to 
convey  any  meaning.  At  this  rate,  the  miles  run  in  a 
single  week  would  girdle  the  earth  forty-six  times,  or 
nearly  seven  times  in  a  day,  or  once  in  three  and  one- 
half  hours.  With  so  vast  a  movement  the  liability  to  ac- 
cident is  very  great,  and  yet,  41 ,783,000  passengers  were 
carried  the  inconceivably  great  aggregate  distance  of 
1,756,482,000  miles,  equivalent  to  transporting  the  en- 
tire population  of  Greater  New  York,  some  5,000,- 
000  people,  from  New  York  to  Rochester.  This  was 
done  without  a  fatality  in  a  train  accident,  and  it  had 
been  done  in  the  four  years  preceding  with  the  same 
immunity. 

Mr.  Kruttschnitt  attributed  these  results  mainly 
to  the  policies  of  Mr.  Harriman  and  to  the  coopera- 
tion and  team-work  which  he  so  ardently  advocated. 

The  most  important  extension  of  the  Southern 
Pacific  made  after  the  Union  Pacific  acquired  control 
was  the  branch  line  into  Mexico.  ''Mr.  Harriman,'* 
says  Alexander  Millar,  late  secretary  of  the  Union 
Pacific,  "visited  the  City  of  Mexico  in  March,  1902, 
and  there  met  President  Diaz  and  the  leading  men  of 
the  Mexican  Republic.  As  a  result  of  that  visit  a 
concession  was  granted  by  the  Government  of  the 
Republic  for  the  construction  and  operation  of  lines 


256  E.  H.  HARRIMAN 

of  railway  from  Guaymas,  on  the  Gulf  of  California, 
up  the  valley  of  the  Yaqui  River,  in  the  State  of 
Sonora,  to  develop  the  coal  and  mineral  resources  of 
that  region,  and  also  down  the  west  coast  of  Mexico 
through  the  cities  of  Navajoa,  San  Bias,  Culiacan, 
Mazatlan,  and  Tepic  to  the  city  of  Guadalajara, 
there  connecting  with  the  national  lines  for  the  City 
of  Mexico  and  the  South  and  East,  a  total  distance, 
with  branches,  of  about  fifteen  hundred  miles.  These 
lines  will  not  only  afford  the  Government  of  Mexico 
an  easy  and  natural  route  for  the  movement  of  troops 
and  supplies  to  the  Pacific  States  of  the  Republic, 
but  will  open  up  a  vast  extent  of  territory  rich  in 
mining,  agricultural,  and  shipping  interests  tribu- 
tary to  our  Southwestern  States.  On  the  ist  of  July, 
1909,  about  eight  hundred  miles  of  the  Mexican 
lines  had  been  finished,  and  in  the  spring  of  that  year 
Mr.  Harriman  went  over  them  to  Mazatlan  in  the 
first  railroad  train  ever  seen  by  the  natives  of  that 
place."  ^  The  cost  of  the  Mexican  lines,  so  far  as  they 
had  been  completed  during  the  period  of  Mr.  Harri- 
man*s  administration,  was  about  $35,000,000,  which, 
added  to  the  cost  of  new  lines  and  branches  built 
or  acquired  by  the  Southern  Pacific  in  the  United 
States  in  the  same  period,  make  a  total  expenditure 

*  E.  H.  Harriman  and  the  Union  Pacific,  by  Alexander  Millar,  secre- 
tary of  the  Union  Pacific  Railroad  Company  (New  York,  1910),  p.  11. 


THE  SOUTHERN  PACIFIC  257 

of  $1 14,513,000  for  the  extension  of  the  system,  aside 
from  §127,000,000  spent  in  the  reconstruction  and  re- 
equipment  of  it. 

It  has  sometimes  been  said  that  Mr.  Harriman 
was  not  a  railroad-builder,  but  only  an  improver  of 
railroads  that  had  been  built  by  others.  This,  how- 
ever, is  hardly  true.  He  built,  or  caused  to  be  built, 
more  than  fifteen  hundred  miles  of  entirely  new  road, 
much  of  it  in  a  very  wild,  mountainous  region,  and  the 
money  spent  under  his  direction  for  the  improvement 
of  the  Union  and  Southern  Pacific  Systems  would  have 
sufficed,  at  that  time,  to  build  and  equip  three  or  four 
transcontinental  lines  of  wholly  new  railway  from 
the  Missouri  River  to  the  Pacific  Ocean.  Improve- 
ment, on  such  a  scale  as  this,  does  not  differ  essentially 
from  new  construction.  An  idea  may  be  gained  of  the 
scope  and  extent  of  Southern  Pacific  improvements 
from  the  following  itemized  statement  of  expenditures : 

Extensions: 

New  lines  and  branches  built  or  bought $114,513,383 

$114,513,383 
Track  betterments: 

Lucin  cut-off $8,358,833 

Bay  Shore  cut-off 9,273,055 

Montalvo  cut-off 2425,911 

Other  line  changes  and  reconstruction 10,761,484 

Second  main  track 2,699,532 

Side  tracks 7,293,407 

Bridges  and  trestles 6,298,059 

Automatic  block  signals 2,835,278 

Ballast 2.962,206 

Total  track  betterments $52,907,765 


258  E.  H.  HARRIMAN 

I^ew  equipment: 

Rolling  stock,  9919  locomotives  and  cars $32,061,304 

Steamers,  ferry-boats,  etc 8,984,282 

Total  new  equipment $41,045,586 

Buildings  and  real  estate: 

Terminals  and  land $13,896,985 

Station  grounds  and  right  of  way 3,235,988 

Station  buildings  and  fixtures 1,878,217 

Pumping  stations 1,058,294 

Fuel  stations 1,827,396 

Shops,  machines  and  tools 3,332,71 1 

Miscellaneous  structures 1,611,337 

Various  betterments,  docks,  engine  houses,  fencing,  etc.  6,636,756 

Total  buildings  and  real  estate $33,477,684 

Recapitulation: 

Extensions $114,513,383 

Track  betterments 52,907,765 

New  equipment 41,045,586 

Buildings  and  real  estate 33,477.684 

Grand  total $241,944,418 

The  results  of  these  betterments  were  summed  up 
by  Mr.  Kruttschnitt  in  the  following  words: 

Through  a  progressive  policy  and  the  assistance  of  an 
established  credit  [that  of  the  Union  Pacific]  enormous 
sums  were  expended  for  betterments  and  additions;  the 
physical  condition  of  the  roads  was  vastly  improved; 
grades  were  reduced  and  curves  eliminated;  the  lines 
were  shortened  wherever  possible;  facilities  of  all  kinds 
were  enlarged;  the  heaviest  and  most  powerful  types  of 
locomotives  were  freely  supplied,  and  the  modern  pas- 
senger and  freight  cars  furnished  were  of  standards  not 
surpassed  on  any  railroad  in  the  United  States.  As  a  re- 
sult, the  general  service  to  the  public  was  much  im- 
proved; the  danger  from  accidents  was  reduced;  the 
trafhc  was  handled  without  increase  of  rates,  even  dur- 


THE  SOUTHERN  PACIFIC  259 

ing  periods  of  rising  prices  for  material  and  labor,  and 
the  capacity  of  the  roads  was  so  increased  that  they  car- 
ried for  the  public  a  volume  of  business  that  it  would 
have  been  impossible  to  move  at  all  if  the  improvement 
in  facilities  had  not  been  made. 

^^'hile  these  changes,  made  under  the  administration 
of  Mr.  Harriman,  improved  the  return  to  the  stock- 
holders through  the  development  and  transportation  of 
a  much  greater  volume  of  business  at  lower  cost,  they 
were  equally  beneficial  to  the  public  in  providing  a 
safer,  straighter,  and  more  comfortable  road  and  better 
equipment  for  passenger  travel,  as  well  as  increased  ca- 
pacity for  freight  with  more  certainty  in  movement  and 
promptness  in  delivery.^ 

Although  the  Interstate  Commerce  Commission, 
which  investigated  the  merger  of  the  Union  and 
Southern  Pacific  Systems,  was  strongly  prejudiced 
against  Mr.  Harriman,  it  did  not  venture  to  deny 
that  his  management  of  the  loads  had  resulted  in 
great  material  improvement.  Commissioner  Lane,  in 
his  report  on  ''Consolidation  and  Combination  of 
Carriers,"  in  1907,  said: 

It  has  been  no  part  of  the  Harriman  policy  to  permit 
the  properties  which  were  brought  under  Union  Pacific 
control  to  degenerate  and  decline.  As  railroads,  they 
are  better  properties  to-day  —  with  lower  grades, 
straighter  tracks,  and  more  ample  equipment  —  than 
they  were  when  they  came  under  that  control.  Large 
sums  have  been  generously  spent  in  the  carrying  on  of 
engineering  works  and  betterments  which  make  for  the 

*  Unpublished  letter  of  Julius  Kruttschnitt,  director  oi  maiiitciiaiice 
and  operation  of  the  Harriman  lines. 


26o  E.  H.  HARRIMAN 

improvement  of  the  service  and  the  permanent  value  of 
the  property.^ 

In  view  of  the  fact  that  Mr.  Harriman  spent  in 
the  reconstruction  and  reequipment  of  the  two  sys- 
tems more  than  $400,000,000,  or  enough,  at  that 
time,  to  build  and  equip  three  or  four  entirely  new 
lines  to  the  Pacific  Coast,  the  Commission  could 
hardly  say  less  than  this;  but,  for  reasons  of  its  own, 
it  persisted,  nevertheless,  in  regarding  this  tremen- 
dous scheme  of  betterment  as  a  menace,  in  some 
way,  to  the  welfare  of  the  people  whose  interests  it 
so  effectively  promoted.  If  Mr.  Harriman  had  not 
lived,  there  would  have  been  a  delay  of  certainly  ten 
years,  and  possibly  twenty,  in  the  development  of 
the  resources  of  the  Great  West. 

^  Report  of  the  Interstate  Commerce  Commission  on  "Consolida- 
tion and  Combination  of  Carriers,"  by  Franklin  K.  Lane  (April  5, 
1907),  p.  281. 


1 


CHAPTER  X 
RAILROAD  COMBINATIONS 

THE  merger  of  the  Union  Pacific  and  Southern 
Pacific  lines  in  1901  was  the  largest  and  most 
important  combination  of  railroad  properties  that 
had  ever  been  made,  and  in  view  of  the  hostile  crit- 
icism to  which  it  was  afterward  subjected  and  the 
attacks  that  were  made  upon  Mr.  Harriman  as  the 
leading  exponent  of  the  consolidation  policy,  it  may 
be  well  to  consider  briefly  the  reasons  for  such  com- 
binations and  the  efTect  that  they  had  upon  the  pub- 
lic welfare. 

The  consolidation  of  railroads  into  large  groups, 
or  systems,  had  its  origin  in  the  demonstrated  evils 
of  unrestricted  competition.  More  than  forty  years 
ago,  railway  managers  became  convinced  that  un- 
restricted competition  was  prejudicial  to  the  inter- 
ests of  both  shareholders  and  shippers.  It  injured 
the  former  by  reducing  their  profits,  and  the  latter 
by  vitiating  all  commercial  contracts  that  were  de- 
pendent upon  equality  and  stability  of  rates.  A  ship- 
per or  manufacturer  could  not  safely  make  plans  for 
the  future  unless  he  felt  sure  that  transportation 
rates  would  remain  substantially  unchanged,   nor 


262  E.  H.  HARRIMAN 

could  he  enter  into  contracts  for  future  delivery  un- 
less he  had  some  guarantee  that,  when  the  time 
should  come  for  the  shipment  of  his  goods,  he  could 
get  them  carried  to  their  destination  as  cheaply  as 
could  any  of  his  business  rivals.  Cut-throat  competi- 
tion between  railroads,  with  the  frequent  changes 
and  wide  discriminations  that  it  involved,  deprived 
him  of  all  security  and  introduced  an  element  of 
uncertainty  into  every  business  transaction.^ 

With  a  view  to  avoiding  these  and  other  evils  of 
unrestricted  competition,  the  railways,  after  the 
disastrous  rate  wars  of  1875  and  1878,  entered  into 
what  were  known  as  "pooling"  agreements,  by  vir- 
tue of  which  freight  was  apportioned  among  the 
several  competing  roads,  or  receipts  from  traffic  were 
divided  among  them,  in  such  a  way  as  to  secure 
equality  and  stability.  These  agreements  were  not 
intended  to  raise  rates,  or  to  keep  them  at  an  unduly 
high  level;  their  object  was  to  steady  rates  —  to 
avoid  the  competitive  changes,  differences,  and  dis- 
criminations which  were  as  upsetting  to  the  calcula- 
tions of  producers  and  shippers  as  they  were  un- 
profitable to  the  railroads  themselves. 

^  The  Interstate  Commerce  Commission  itself  said,  in  1887,  that 
without  stability  of  rates  all  business  contracts  were  "lottery  ven- 
tures." It  also  admitted  that  railroad  combinations  had  a  tendency 
•'to  remove  obstacles  to  the  interchange  of  business  and  to  increase 
the  facilities  and  conveniences  for  uninterrupted  business  inter- 
course." {First  Report  of  the  Interstate  Commerce  Commission,  De- 
cember I,  1887,  pp.  8  and  34.) 


RAILROAD  COMBINATIONS  263 

For  a  period  of  ten  or  twelve  years,  the  "pooling*' 
system  worked  fairly  well;  but  the  public  became 
obsessed  with  the  idea  that  rates  could  be  reduced 
and  kept  low  only  by  the  unrestrained  competition 
of  carriers;  and  every  effort  of  railway  managers  to 
secure  uniformity  and  stability  was  regarded  as  a 
conspiracy  to  extort  money  from  the  people.  In 
1887,  Congress,  paying  more  attention  to  popular 
clamor  and  demagogic  appeals  than  to  facts  or  rea- 
son, inserted  in  the  Interstate  Commerce  Bill  a  sec- 
tion which  made  it  ''unlawful  for  any  common  car- 
rier to  enter  into  any  contract,  agreement,  or  com- 
bination with  any  other  common  carrier,  or  carriers, 
for  the  'pooling'  of  freights  of  different  competing 
railroads,  or  to  divide  between  them  the  aggregate 
or  net  proceeds  of  the  earnings  of  such  railroads,  or 
any  portion  thereof."  Although  this  prohibition,  as 
a  well-known  economist  has  said,  "was  suggested 
and  carried  through  by  one  of  those  spasms  of  dema- 
gogism  which  have  done  so  much  to  retard  progress," 
it  completely  thwarted  the  attempt  of  the  transpor- 
tation companies  to  stabilize  rates  by  means  of  re- 
ciprocal agreements.  Railway  managers  then  tried 
to  get  the  same  results  by  organizing  joint-traffic 
associations,  which  controlled  rates  through  tariff 
concessions  and  cooperative  adjustments.  This  plan 
also  worked  well  for  a  time,  but  just  as  it  was  be- 


264  E.  H.  HARRIMAN 

coming  most  effective  it  was  prohibited  by  the  Su- 
preme Court,  on  the  ground  that  it  brought  about 
a  restraint  of  trade  and  consequently  violated  the 
provisions  of  the  Sherman  Anti-Trust  Law. 

Urged  on  by  the  extreme  need  of  stabilizing  rates, 
as  well  as  by  considerations  of  efficiency  and  econ- 
omy, the  railroads  then  began  to  combine  into  large 
systems,  each  of  which  dominated  traffic  conditions 
over  a  large  area.  Some  of  these  combinations  were 
made  through  purchases  or  leases,  some  through 
stock  holdings,  and  some  through  that  form  of  uni- 
fied control  known  as  "a  community  of  interest/' 
Congress,  however,  was  opposed  to  such  combina- 
tions, as  well  as  to  the  "pooling"  and  traffic  agree- 
ments that  preceded  them,  for  the  alleged  reason 
that  they  had  a  tendency  to  raise  transportation 
rates,  or  to  maintain  such  rates  at  an  unduly  high 
level.  But,  as  a  matter  of  fact,  did  they  have  such 
a  tendency?  During  the  period  of  "pooling"  and 
joint- traffic  associations  —  that  is,  between  1870 
and  1 890  —  there  was  a  decrease  in  freight  rates  of 
about  fifty  per  cent.  In  1870,  the  average  rate  per 
ton-mile  was  1.889  cents.  In  1880,  it  was  1.232  cents, 
and  in  1890,  0.941  cent.  The  decrease  on  Eastern 
roads  was  from  1.61  to  0.55;  on  Western  roads  from 
2.61  to  0.94,  and  on  transcontinental  lines  from 
4.50  to  0.99.   If  railroad  pools  and  agreements  had  a 


RAILROAD  COMBINATIONS  265 

tendency  to  increase  rates,  or  even  to  maintain  them, 
why  did  not  such  tendency  become  apparent? 

If  we  take  the  era  of  railroad  mergers  and  com- 
binations —  the  period  during  which  the  grouping  of 
railroads  into  large  systems  proceeded  most  rapidly 
—  the  decline  in  rates  is  equally  noticeable.  In  the 
quarter  of  a  century  that  ended  with  1903,  when 
nearly  all  the  great  railroad  combinations  were 
formed,  including  that  of  the  Union  Pacific  with  the 
Southern  Pacific,  freight  rates  per  ton-mile  decreased 
from  an  average  of  1.22  cents  to  an  average  of  0.77 
cent,  or  nearly  forty  per  cent.  The  saving  to  ship- 
pers by  this  reduction  of  rates  was  approximately 
one  billion  dollars  in  eighteen  years  on  only  one  of  the 
large  Western  systems  —  the  Great  Northern. 

In  the  half-century  that  followed  the  Civil  War, 
there  was  never  a  time  when  railroad  pools,  agree- 
ments, or  combinations  increased  rates,  or  even 
maintained  them  at  a  fixed  level.  On  the  contrary, 
there  was,  throughout  that  period,  a  steady  and 
continuous  decline,  which  brought  down  ton-mile 
rates,  on  such  a  railroad  combination  as  the  Penn- 
sylvania System  for  example,  from  two  and  a  half 
cents  to  six  mills.  The  conclusion  seems  to  be  irresist- 
ible that  the  high-rate  evil,  against  which  so  much 
prohibitory  legislation  was  directed,  did  not  exist  — 
it  was  wholly  imaginary. 


266  E.  H.  HARRIMAN 

The  only  other  evil  alleged  as  a  reason  for  pro- 
hibiting combinations  was  that  the  size  of  the  sys- 
tems that  might  be  formed  would  tend  to  produce 
monopolistic  conditions  over  a  wide  area  and  thus 
give  the  railroads  undue  power.  But  they  could 
exercise  that  power  to  the  prejudice  of  the  public 
interest  only  in  one  way,  namely,  by  making  an  ex- 
cessive charge  for  the  service  that  they  rendered. 
Theoretically,  of  course,  railroad  managers,  if  they 
had  a  complete  monopoly  of  transportation  in  a 
given  area,  or  between  two  given  points,  might  fix 
almost  any  rates;  but  practically  they  would  still  be 
subjected  to  a  very  effective  economic  restraint.  If 
they  made  charges  too  high,  they  would  lessen,  crip- 
ple, or  destroy  the  traffic  upon  which  their  profits 
depended.  Mr.  Harriman,  long  ago,  pointed  out  the 
fact  that  no  railroad,  or  combination  of  railroads, 
can  charge  exorbitant  rates  without  throttling  or 
paralyzing  the  industries  along  its  lines.  "It  is  im- 
possible," he  said,  "for  a  railroad  to  sever  its  inter- 
ests from  those  of  its  patrons.  Its  life-blood  is  drawn 
from  their  prosperity,  and  it  must  furnish  them  with 
adequate  and  ever-increasing  facilities  at  reasonable 
rates.  The  widespread  popular  impression  that  a 
railroad  company  can  extort  money  from  the  public 
at  will,  and  in  defiance  of  the  laws  of  trade,  is  not 
justified  by  the  facts." 


RAILROAD  COMBINATIONS  267 

As  a  matter  of  history,  the  great  railroad  com- 
binations formed  between  1887  and  1905  —  com- 
binations that  were  said  to  be  monopolistic  in  nature 
or  tendency  —  did  not  fix  unnecessarily  high  rates. 
Proof  of  this  is  furnished  by  the  records  of  the  Inter- 
state Commerce  Commission.  In  response  to  a  Sen- 
ate resolution  of  inquiry,  adopted  January  13,  1905, 
the  Commission  reported  that  in  the  eighteen  years 
of  its  existence  it  had  heard  9099  complaints,  relat- 
ing to  all  sorts  of  railroad  methods  and  practices. 
Thousands  of  them  charged  unjust  discrimination 
between  persons  or  places,  but  not  one  alleged  ex- 
orbitant rates.  More  than  eight  thousand  of  the 
cases  of  supposed  discrimination  were  informally 
and  amicably  settled,  and  of  the  forty-five  com- 
plaints that  were  carried  into  the  courts  only  eight 
were  sustained.^  If  the  great  railroad  combinations 
accused  of  monopoly  had  charged  exorbitant  rates, 
it  is  inconceivable  that  in  the  course  of  eighteen 
years  complaint  of  it  should  not  have  been  made  by 
some  one  of  the  nine  thousand  shippers  who  came 
before  the  Commission. 

The  records  of  the  great  railroad  combinations 
that  were  in  existence  during  the  period  covered  by 

*  Railroad  Regulation  in  Its  Political  Aspects,  by  Joseph  Nimmo, 
Jr.  (Washington,  May  4,  1909),  p.  5;  Highways  oj  Progress ^  by  James 
J.  Hill  (New  York,  1912),  p.  271. 


268  E.  H.  HARRIMAN 

the  Commission's  report  furnish  additional  proof 
that,  although  the  grouping  of  railroads  into  large 
systems  enormously  increased  the  service  rendered, 
it  did  not  increase  the  rates  charged.  Between  1898 
and  1909,  for  example,  the  Union  Pacific  Company 
increased  its  capacity  for  handling  freight  by  about 
one  hundred  and  forty  per  cent,  while  at  the  same 
time  it  lowered  rates  by  an  average  of  sixteen  per 
cent.  Abundant  facilities  are  often  as  important  to 
shippers  as  low  rates;  the  Union  Pacific  furnished 
both.  On  the  Great  Northern  system,  during  ap- 
proximately the  same  period,  there  was  also  a  great 
increase  of  facilities,  accompanied  by  a  reduction  of 
rates  which  saved  shippers  one  hundred  million  dol- 
lars in  a  single  year  (1909).^ 

The  low  rates  on  the  Western  combined  lines  were 
undoubtedly  due,  in  part,  to  the  reduction  of  grades, 
the  straightening  of  curves,  the  use  of  heavier  equip- 
ment, and  the  many  other  improvements  in  the  art 
of  railroading  which  Mr.  Harriman,  in  particular 
advocated  or  introduced ;  but  they  were  also  due,  in 
very  large  part,  to  the  increased  ef^ciency  and  econ- 
omy which  the  grouping  of  railroads  into  big  sys- 
tems made  possible.  This,  as  will  presently  be  shown, 
was  particularly  true  of  the  Union  Pacific-Southern 
Pacific  merger. 

*  Highways  of  Progress,  by  James  J.  Hill  (New  York,  19 12),  pp. 
260-61. 


RAILROAD  COMBINATIONS  269 

Not  one  of  the  Western  combinations  had  any- 
thing Hke  a  complete  monopoly  of  the  territory  that 
it  served ;  but  the  results  of  a  nearly  complete  monop- 
oly may  be  found  in  the  history  of  one  of  the  great 
Eastern  systems,  namely,  the  Pennsylvania. 

For  many  years  [says  Professor  Mead]  the  Pennsyl- 
vania has  been  dominant  in  the  State  of  Pennsylvania, 
and  has  enjoyed  the  largest  advantage  from  the  traffic 
of  the  middle  Atlantic  seaboard.  Its  rivals  have  cut  into 
long-distance  traffic,  but  in  the  most  valuable  portions  of 
this  eastern  territory  the  Pennsylvania  Railroad  Com- 
pany has  supplied  the  majority  of  shippers  with  their 
transportation  facilities.  If  there  were  any  truth  in  the 
assertion  that  railroad  monopoly  is  injurious  to  the  in- 
terests of  the  shipper,  it  would  appear  in  the  territory 
which  the  Pennsylvania  controls.  As  a  matter  of  fact, 
the  unprecedented  growth  of  this  section  in  wealth  and 
prosperity  offers  a  striking  refutation  of  the  claim  that 
competition  is  the  life  of  trade.  It  is  not  to  the  interest 
of  the  Pennsylvania  Company,  although  its  power  in 
most  of  this  eastern  territory  is  unquestioned,  to  exact 
unfair  rates  from  the  shipper.  Not  by  such  methods 
can  a  large  traffic  be  built  up.  A  railroad  which  abuses 
its  power  and  follows  a  policy  of  extortion  is  working 
directly  against  its  own  interests.  The  policy  of  the 
Pennsylvania  has  been  to  leave  a  liberal  margin  of  profit 
to  the  shipper,  in  order  to  encourage  him  to  expand  his 
business  and  furnish  more  freight  to  the  railroad.  The 
success  of  this  policy  is  written  in  the  prosperity  of  the 
corporation,  and  even  more  legibly  in  the  prosperity  of 
the  territory  which  it  serves.^ 

^  "The  Great  American  Railway  Systems:  The  Pennsylvania,"  by 
Edward  Sherwood  Mead,  Professor  of  Finance  and  Economy  in  the 
University  of  Pennsylvania.   {Railway  World,  February  20,  1904.) 


270  E.  H.  HARRIMAN 

There  have  undoubtedly  been  a  few  monopolies 
which,  under  the  direction  of  greedy  and  short- 
sighted managers,  have  tried  to  make  large  and  im- 
mediate profits  by  charging  unreasonable  rates;  but 
such  monopolies  must  always  be  self-destructive  for 
the  reasons  that  Mr.  Harriman  and  Professor  Mead 
have  given.  They  cannot  possibly  last  long,  even 
though  there  be  no  anti-trust  law  to  suppress  them. 

If  the  evidence  above  set  forth  shows,  as  it  seems 
to  show,  that  combinations  do  not  raise  rates,  and 
that  transportation  monopolies  injurious  to  the  ship- 
per or  the  public  are  self -destructive  and  short-lived, 
what  remains  of  the  case  against  railroad  consolida- 
tions? Nothing,  apparently,  except  the  vague  and 
unsupported  charge  that  big  combinations  of  car- 
riers are  "a  menace  to  the  public  welfare.*'  But  this 
assertion,  for  which  no  proof  is  offered,  was  discred- 
ited nearly  four  centuries  ago.  In  1522,  the  Diet  of 
Nuremberg  appointed  a  committee  to  investigate 
the  evils  said  to  be  caused  by  the  combination  of 
merchants  into  great  companies.  In  explaining  its 
reasons  for  doubting  the  expediency  of  a  restrictive 
policy,  the  committee  said: 

It  is  impossible  to  limit  the  size  of  the  companies,  for 
that  would  limit  business  and  hurt  the  common  welfare. 
The  bigger  and  more  numerous  they  are,  the  better  for 
everybody.  If  a  merchant  cannot  do  business  above 
a  certain  amount,  what  is  he  to  do  with  his  surplus 


I 

RAILROAD  COMBINATIONS  271 

money?  Some  people  talk  of  limiting  the  earning  ca- 
pacity of  investments.  This  would  be  unbearable  and 
would  work  great  injustice  and  harm  by  taking  away 
the  livelihood  of  widows,  orphans,  and  other  sufferers 
who  derive  their  income  from  investments  in  these  com- 
panies. .  .  .  Hence  any  one  can  see  that  the  idea  that 
the  companies  undermine  the  public  welfare  ought  not 
to  be  seriously  considered. 

This  ancient  record  of  one  of  the  earliest  investiga- 
tions of  trusts  might  well  be  thoughtfully  considered 
by  Congressmen  who  sought  to  restrain  railroad 
combinations  because  they  wxre  "a  menace  to  the 
public  welfare,'*  and  by  Interstate  Commerce  Com- 
missioners who  limited  the  earning  capacity  of  trans- 
portation companies  and  thus  **  took  away  the  liveli- 
hood of  widows,  orphans,  and  other  sufferers"  who 
were  dependent  upon  investments  for  support.  We 
are  supposed  to  have  learned  something  in  the  course 
of  four  hundred  years  —  but  have  we?  The  Diet  of 
Nuremberg,  in  1522,  seems  to  have  had  a  clearer 
comprehension  of  economic  law  than  had  the  Con- 
gress that  passed  the  Anti-Trust  Bill  and  the  courts 
that  afterward  interpreted  it. 

Let  us  see  now  to  what  extent  the  combination  of 
the  Union  Pacific  with  the  Southern  Pacific  benefited 
the  latter,  and  what  the  effect  of  the  merger  was  upon 
the  public  welfare.  When  Mr.  Harriman  bought  the 
Southern  Pacific  and  began  the  reconstruction  of  it, 
his  ultimate  object  was  to  transport  over  it  more 


272  E.  H.  HARRIMAN 

freight  and  more  passengers  at  a  relatively  reduced 
cost.  He  saw,  as  his  famous  rival  James  J.  Hill  saw, 
that  the  greatest  possible  economy  in  railway  opera- 
tion was  to  be  effected  by  carrying  a  greater  volume  of 
traffic  with  fewer  trains,  or,  to  speak  more  accurately 
with  a  decrease  in  the  aggregate  mileage  of  trains 
run.  If  he  could  increase  the  tonnage  carried  by,  say, 
twenty  per  cent,  while,  at  the  same  time,  he  reduced 
the  number  of  miles  run  by,  say,  ten  per  cent,  he 
would  make  an  immense  saving  in  fuel,  wages,  and 
the  cost  of  operation  generally.  The  only  way  in 
which  this  could  be  accomplished  was  by  using  larger 
cars  and  more  powerful  locomotives.  But  in  order  to 
run  economically  this  heavier  equipment,  he  would 
have  to  have  a  better  track  —  a  track  with  stronger 
rails  and  bridges,  fev/er  curves,  and  more  moderate 
grades.  It  was  for  this  reason  that  he  rebuilt  nearly 
four  hundred  miles  of  the  Southern  Pacific  line; 
spent  $20,000,000  for  track  improvement  in  only 
three  places,  and  substituted  permanent  structures 
of  earth,  concrete,  or  metal  for  about  thirty  miles  of 
wooden  bridges  and  trestles.  He  wanted  a  track  on 
which  he  could  use  safely  and  economically  powerful 
locomotives  and  cars  of  large  capacity.  He  therefore 
put  nearl)'  $53,000,000  into  track  betterments  alone. 
As  soon  as  he  had  made  the  track  fit  for  heavy  equip- 
ment, he  spent  more  than  $30,000,000  for  new  roil- 


RAILROAD  COMBINATIONS  273 

ing  stock,  including  540  locomotives  and  8869 
freight  cars.  The  increase  in  traffic,  from  year  to 
year,  which  accompanied  this  increase  of  faciUties  is 
shown  in  the  following  table: 


Tons  carried 

Frt.  train 

Tons  of 
freight 
per  train 
including 
%  mixed 

Years 

Average 

Tons 

Tons  carried 

I  mile  per 

mileage 

miles 

carried 

J  mile 

mile  of  road 

including 

operated 

all  frt. 

all  frt. 

all  frt. 

%  mixed 

1901 

8,774-37 

17,725,632 

5,694,770,640 

653,802 

18,650,784 

305.34 

1902 

8,809.21 

20,260,573 

6,059,873,410 

691,96s 

18,997,981 

318.97 

1903 

8,933.43 

22,230,367 

6,308,502,359 

711,099 

19,344,658 

326.11 

1904 

9,135.49 

23,684,348 

6,562,648,418 

727,196 

19,823.619 

331.05 

1905 

9,142.01 

24,464,827 

6,561,349,589 

718,041 

18,886,016 

347.42 

1906 

9,216.83 

27,589,004 

7,236,786,873 

784,590 

18,468,406 

391.85 

1907 

9.4SI.27 

30,810,518 

8,0x1,974,964 

849,420 

20,677,172 

387.48 

1908 

9,591.82 

28,998,913 

7,845.002.515 

824,251 

18,988,586 

413.14 

1909 

9,734-03 

28,122,443 

7.213,993,420 

749,394 

15,261,631 

472.69 

From  the  above  table  it  appears  that  the  Southern 
Pacific  carried,  in  1909,  10,000,000  more  tons  of 
freight  than  it  carried  in  1 901,  but  with  a  reduction 
of  3,400,000  in  the  number  of  freight-train  miles  run. 
This  was  made  possible  by  increasing  the  capacity  of 
the  average  freight  car  from  26  tons  to  37  tons,  and 
the  average  train-load  from  305  tons  to  472  tons. 

In  the  passenger  traffic  there  was  a  similar  increase 
without  a  proportionate  increase  in  the  passenger- 
train  mileage.  Between  1901  and  1909  the  number  of 
passengers  carried  one  mile  increased  65  per  cent, 
while  the  increase  in  passenger-train  miles  run  was 
only  43  per  cent.  The  relative  economy  in  the  opera- 
tion of  passenger  trains  was  not  so  great  as  in  that  of 
freight  trains,  for  the  reason  that  in  the  former  it  was 


274  E.  H.  HARRIMAN 

not  possible  to  increase  the  car  and  train  capacity  so 
much.  Nevertheless,  606,000,000  more  passengers 
were  carried  one  mile  in  1909  than  in  1901,  with  an 
addition  of  only  5,800,000  to  the  passenger-train 
mileage. 

Great  economy  was  also  effected  by  pooling  the 
whole  equipment  of  the  Union  and  Southern  Pacific 
systems.  The  Southern  Pacific,  prior  to  its  consoli- 
dation with  the  Union  Pacific,  was  composed  of  a 
number  of  organizations  and  subsidiary  companies, 
many  of  which  had  their  own  managing  ofhcers,  and 
were  operated,  in  some  respects,  independently  of 
one  another.  This  prevented  the  effective  and  eco- 
nomical distribution  of  rolling  stock  over  a  large  area, 
and  resulted  in  the  returning  of  many  cars  empty  to 
the  places  where  they  had  been  loaded.  The  trafhc 
demand  for  freight  cars  varies  greatly  in  different 
places  and  at  different  seasons  of  the  year,  and  the 
utmost  possible  economy  in  operation  can  be  se- 
cured only  by  redistributing  rolling  stock,  from  time 
to  time,  in  such  a  way  as  to  place  cars  where,  at  the 
moment,  they  happen  to  be  most  needed,  thus  keep- 
ing them  constantly  employed.  It  costs  almost  as 
much  to  haul  an  empty  car  as  one  that  is  loaded,  and 
the  great  advantage  that  a  combination  has  over  a 
number  of  unrelated  or  loosely  connected  roads  is 
that  it  can  distribute  cars  more  widely,  in  accord- 


RAILROAD  COMBINATIONS  275 

ance  with  varying  needs,  and  thus  avoid  the  un- 
necessary hauling  of  empties  on  return  trips. 

One  of  the  first  things  that  Mr.  Harriman  did, 
after  he  acquired  control  of  the  Southern  Pacific, 
was  to  appoint  J.  C.  Stubbs  as  director  of  trafBc  for 
both  Pacific  Systems.^  Then,  when  the  work  of 
reconstruction  in  charge  of  Mr.  Kruttschnitt  had 
been  largely  completed,  he  appointed  him  director  of 
maintenance  and  operation  for  all  the  Harriman 
lines,  and  authorized  him  to  work  out  as  perfect  a 
system  as  possible  of  pooling  equipment  and  unify- 
ing trafftc  on  both  of  the  great  Pacific  Systems.  The 
results  more  than  justified  his  anticipations. 

On  June  i,  1904  [says  Mr.  Kruttschnitt],  we  com- 
menced pooling  freight  equipment  on  all  the  lines  of  the 
Union  Pacific  System  and  the  Southern  Pacific  Com- 
pany. The  object  of  this  was  to  increase  efificiency  and 
reduce  unnecessary  haul  by  permitting  the  cars  of  all 
the  roads  to  be  used  as  though  they  were  of  one  owner- 
ship. It  had  previously  been  the  practice,  and  is  still 
the  practice  for  roads  of  different  ownership,  to  return 
cars  to  their  owners  empty  when  they  cannot  be 
promptly  reloaded,  in  order  to  escape  rental  payments 
on  them.  In  the  next  two  years  after  we  inaugurated  the 
system  of  pooling  equipment,  we  so  reduced  our  empty- 
car  haul  that,  in  the  two  years,  we  saved  the  running  of 

^  Mr.  Stubbs  had  been  in  the  freight-department  service  of  the 
Southern  Pacific  Company  for  nearly  thirty  years,  and  was  generally 
regarded  as  one  of  the  ablest  traffic  experts  in  the  United  States.  At 
the  time  of  the  consolidation  he  was  third  vice-president  and  traffic 
manager. 


276  E.  H.  HARRIMAN 

53,213,791  car-miles  unnecessarily,  which  would  be 
equivalent  to  operating  one  average  freight  train  a  dis- 
tance of  1,400,900  miles.  ^ 

It  can  readily  be  seen  that  this  saving  in  the  num- 
ber of  car-miles  run  greatly  reduced  operating  ex- 
penses, while,  at  the  same  time,  the  pooling  of  equip- 
ment accommodated  shippers  by  devoting  to  their 
use  on  one  road,  or  system,  the  cars  which,  at  that 
particular  time,  were  not  needed  on  another.  It 
was  like  giving  to  a  military  commander  on  a  wide 
front  the  resources  and  motor-trucks  of  two  or  three 
army  corps  instead  of  one. 

The  consolidation  of  the  Union  and  Southern 
Pacific  systems  enabled  Mr.  Harrlman  to  make 
another  improvement,  which,  from  the  point  of  view 
of  economy,  was  almost  as  Important  as  the  pooling 
of  rolling-stock,  and  that  was  the  standardization  of 
equipment  generally.  Under  his  administration,  all 
material  things  used  in  the  operation  of  a  railroad, 
from  locomotives  and  cars  to  rails,  frogs,  switches, 
wrenches,  nuts,  bolts,  oil-boxes,  and  journal-bearings 
were,  as  far  as  possible,  standardized  and  made  uni- 
form. On  the  lines  of  the  separate  companies  that 
made  up  the  two  systems  there  were  originally  nearly 
fifty  patterns  of  frogs;  they  were  reduced  to  four. 
There  were  nearly  a  hundred  different  kinds  of  jour- 

*  Unpublished  letter  of  Julius  Kruttschnitt,  director  of  main- 
tenance and  operation  of  the  Harriman  lines. 


RAILROAD  COMBINATIONS  277 

nal-bearings ;  they  also  were  reduced  to  four.  This 
policy  of  standardization,  which  would  not  have 
been  possible  without  unified  control,  not  only  re- 
duced cost  by  enabling  the  allied  companies  to  pur- 
chase such  supplies  in  immense  quantities,  but  ef- 
fected a  great  saving  in  time  in  the  making  of  repairs. 
If,  before  the  merger,  a  Union  Pacific  car  lost  the 
use  of  an  oil-box  at  San  Francisco,  it  might  be  neces- 
sary to  send  to  Ogden,  or  Omaha,  for  a  new  one.  If  a 
Southern  Pacific  car  broke  down  at  Butte,  Montana, 
the  part  needed  for  repair  might  have  to  be  brought 
from  Sacramento,  or  from  some  Southern  Pacific 
center  a  thousand  miles  away.  Combination  and 
standardization  made  it  possible  to  get  almost  any 
needed  part  of  equipment  at  almost  any  place  from 
Ogden  to  San  Francisco  and  from  New  Orleans  to 
Portland. 

Sometimes  Mr.  Harriman  was  disposed  to  carry 
this  policy  of  standardization  too  far,  as  in  one  case 
where  he  proposed  that  classes  of  locomotives  on  the 
two  systems  be  made  uniform.  When,  however,  his 
director  of  operation  showed  him  that  this  was  im- 
practicable, and  that  it  would  result  in  a  decrease  of 
efficiency  on  certain  parts  of  the  lines  where  engines 
of  an  exceptional  type  were  needed,  he  yielded  to 
Mr.  Kruttschnitt's  better  judgment. 

On  the  other  hand,  he  often  suggested  improve- 


273  E.  H.  HARRIMAN 

ments  or  economies  that  the  most  experienced  of  his 
assistants  had  never  thought  of. 

One  day  [says  Mr.  Kruttschnitt]  I  was  walking  with 
Mr.  Harriman  on  the  road.  He  noticed  a  track  bolt  and 
asked  me  why  so  much  of  the  bolt  should  protrude  be- 
yond the  nut.  I  replied,  "  It  is  the  size  which  is  generally 
used."  He  said,  "Why  should  we  use  a  bolt  of  such  a 
length  that  a  part  of  it  is  useless?  "  I  replied,  "  Well,  when 
you  come  right  down  to  it,  there  is  no  reason."  We 
walked  along  and  he  asked  me  how  many  track  bolts 
there  were  to  a  mile  of  track,  and  I  told  him.  Thereupon 
he  remarked,  "Well,  in  the  Union  Pacific  and  Southern 
Pacific  we  have  about  eighteen  thousand  miles  of  track 
and  there  must  be  some  fifty  million  track  bolts  in  our 
system.  If  you  can  cut  an  ounce  off  from  every  bolt,  you 
will  save  fifty  million  ounces  of  iron,  and  that  is  some- 
thing worth  while.  Change  your  bolt  standard." 

A  similar  change  was  made,  at  Mr.  Harriman*s 
suggestion,  in  the  width  of  what  is  technically  known 
as  the  "shoulder  of  ballast";  that  is,  the  width  of 
ballast  between  the  ends  of  the  ties  and  the  begin- 
ning of  the  downward  slope  to  the  level  of  the  ter- 
rain. The  elimination  of  a  few  inches  of  superfluous 
''shoulder"  would  not  lessen  much  the  cost  of  bal- 
lasting a  mile  or  two  of  track;  but  even  this  small 
saving,  multiplied  by  thousands  of  miles,  would 
amount,  as  Mr.  Harriman  said  in  the  case  of  the 
track  bolt,  to  "something  worth  while." 

The  increase  in  carrying  capacity  made  possible 
by  Mr.  Harriman's  betterments,  and  the  economies 


RAILROAD  COMBINATIONS  279 

that  resulted  directly  from  the  consolidation  of  the 
two  systems,  were  reflected,  of  course,  in  the  earn- 
ings of  the  Southern  Pacific  Company.  In  1901, 
when  the  combination  was  made,  the  gross  operating 
revenue  of  the  road  was  about  $78,000,000.  In  the 
next  six  years  it  increased  to  $126,000,000.  During 
the  same  period  the  net  surplus,  after  paying  all 
operating  expenses  and  putting  vast  sums  into  re- 
construction and  improvements,  grew  from  $10,000,- 
000  to  $24,000,000.  Up  to  1 90 1,  the  company  had 
never  paid  a  dividend.  In  1907,  it  paid  $2,769,000  in 
dividends  on  its  preferred  stock  and  had  nearly 
$25,000,000  left  for  the  common,  after  having  put 
$30,000,000  of  the  year's  earnings  into  maintenance 
of  way  and  equipment. 

These  results,  the  captious  critic  may  say,  were 
due  to  the  natural  growth  and  development  of  the 
territory  that  the  Southern  Pacific  served.  This,  of 
course,  is  partly  true;  but  if  the  transportation  facili- 
ties afforded  by  the  road  had  not  been  immensely 
increased,  the  growth  and  development  of  the  coun- 
try would  have  been  greatly  retarded.  It  would  be 
almost  as  true  to  say  that  the  reconstructed  railroad 
caused  the  growth  of  the  country  as  to  say  that  the 
growth  of  the  country  caused  the  prosperity  of  the 
road.  They  reacted  on  each  other,  but  the  trans- 
portation facilities,  under  the  far-sighted  manage- 


280  E.  H.  HARRIMAN 

ment  of  Harriman,  Kruttschnitt,  and  Stubbs,  were 
always  ahead  of  the  territorial  development.  In  his 
testimony  before  the  Interstate  Commerce  Com- 
mission in  1907,  Mr.  Harriman  himself  said,  "If  we 
had  not  had  the  power  to  buy  the  Southern  Pacific 
with  the  credit  of  the  Union  Pacific,  the  territory 
tributary  to  the  Southern  Pacific  would  have  been 
ten  years  behind  what  it  is  now."  ^ 

One  of  the  most  important  advantages  of  railroad 
combination  is,  undoubtedly,  the  physical  improve- 
ment of  weak  or  financially  embarrassed  roads  as 
the  result  of  incorporation  in  richer  or  more  powerful 
systems.  When  a  strong  railroad,  with  large  earning 
power  and  high  credit,  combines  with  a  weaker  or 
poorer  competitor,  it  enables  the  latter  to  serve  the 
public  far  better  than  it  ever  could  alone.  A  weak 
road  generally  has  difficulty  in  getting  money  for 
improvements,  and  it  always  has  to  pay  high  rates 
for  its  borrowed  capital.  At  the  minimum  price  fixed 
by  a  State  commission  it  may  not  be  able  to  sell  a 
single  share  of  its  stock,  in  which  case  it  must  borrow 
on  bond  and  mortgage,  or  on  short-term  notes,  and 
thus  increase  fixed  charges  which  may  already  be 
dangerously  great.  All  railroad  managers  are  reluc- 
tant to  do  this,  because  it  lessens  financial  strength; 
so  they  avoid  it  as  long  as  possible  by  cutting  down 

*  Testimony  in  the  investigation  by  the  Interstate  Commerce  Com- 
mission of  "Consolidation  and  Combination  of  Carriers,"  p.  163. 


RAILROAD  COMBINATIONS  281 

expenditures  for  maintenance  and  betterments,  thus 
impairing  the  road's  efficiency  and  usefulness.  Scores 
of  railroads  have  deteriorated  physically  because 
they  have  been  forced  to  economize  in  this  way,  and 
many  more  have  been  thrown  into  the  hands  of  re- 
ceivers as  the  result  of  trying  to  carry  a  large  floating 
debt,  or  of  increasing  their  bonds  out  of  all  propor- 
tion to  their  stock.  Combination  with  a  rich  and 
powerful  road  immediately  changes  this  state  of  af- 
fairs. The  stronger  company  lends  its  money  or  its 
credit  to  the  weaker  and  thus  enables  the  latter  to 
improve  its  track  and  increase  its  equipment  without 
running  the  risk  of  financial  insolvency. 

This  was  what  Mr.  Harriman  did  for  the  Southern 
Pacific.  That  road  never  would  have  been  able  to 
spend  $242,000,000  for  additions  and  betterments  in 
eight  years,  if,  by  its  merger  with  the  Union  Pacific, 
it  had  not  secured  the  benefit  of  the  latter's  credit 
and  Mr.  Harriman's  incomparable  management. 
Its  improved  service  and  increased  public  usefulness, 
therefore,  were  the  direct  result  of  what  the  United 
States  Supreme  Court  after^vard  called  an  illegal 
*' combination  in  restraint  of  trade."  Such  results 
have  almost  always  followed  the  combination  of  a 
strong  road  with  a  weaker  rival,  and  its  beneficial  ef- 
fect, so  far  as  the  public  welfare  is  concerned,  hardly 
needs  to  be  pointed  out. 


282  E.  H.  HARRIMAN 

Mr.  Harriman  would  have  acquired  and  greatly 
improved  other  railroad  properties  in  the  West  and 
Southwest  if  he  had  not  been  prevented  from  doing 
so  by  prohibitory  State  or  Federal  legislation.  In  his 
testimony  before  the  Congressional  Joint  Committee 
on  Interstate  Commerce  in  March,  191 7,  R.  S.  Lov- 
ett,  formerly  counsel  for  the  Union  and  Southern  Pa- 
cific Companies,  said: 

During  the  life  of  Mr.  Harriman,  he  planned  to  build 
a  low-grade  line  connecting  with  the  Union  Pacific  at 
Kansas  City,  thence  to  the  boundary  of  Texas  at  Deni- 
son,  there  connecting  with  the  Houston  &  Texas  Cen- 
tral Line,  controlled  by  the  Southern  Pacific,  and  prac- 
tically to  rebuild  that  line  from  Denison  to  Houston  and 
Galveston,  in  order  to  establish  a  low-grade  line  from 
Kansas  City  to  the  Gulf.  As  counsel,  I  was  obliged  to 
advise  him  that,  under  the  Texas  law  and  the  ruling  of 
its  railroad  commission,  not  a  dollar  in  bonds  could  be 
issued  for  the  money  required  in  the  reconstruction  of 
the  Houston  &  Texas  Central;  and  even  if  stock  could 
be  issued  at  one  hundred  cents  on  the  dollar  for  the 
money  thus  expended,  as  a  practical  matter  it  could  not 
be  sold,  since  stock  ownership  was  the  only  way  by 
which  the  Houston  &  Texas  Central  could  continue  as 
part  of  the  Southern  Pacific  System,  a  lease  or  sale  of 
the  railroad  itself  to  the  Southern  Pacific  Company,  or 
any  foreign  corporation,  being  forbidden  by  the  laws  of 
Texas.  The  result  was  that  a  great  project  for  improv- 
ing the  facilities  for  interstate  and  international  com- 
merce had  to  be  abandoned,  and  the  choppy  grades  of 
the  Houston  &  Texas  Central  continue  as  they  always 
have  been,  and  probably  always  will  be  as  long  as  the 
Texas  law  remains  unchanged.^ 

*  Railway  Age  Gazette,  March  23,  1917. 


RAILROAD  COMBINATIONS  283 

A  new  line  from  Kansas  City  to  the  Gulf  would 
not  have  been  injurious  to  the  public  welfare;  on  the 
contrar>%  it  would  have  been  highly  beneficial  to  all 
concerned ;  and  yet,  construction  of  it  was  prevented 
by  the  votes  of  short-sighted  legislators  who  feared 
that  railroad  combinations  would  promote  the  inter- 
ests of  stockholders  rather  than  the  interests  of  the 
people.  In  the  railroad  field,  as  in  other  fields  of  in- 
dustrial enterprise,  combinations  made  for  the  pur- 
pose of  rendering  better  service,  or  furnishing  more 
commodities  at  lower  cost,  are  as  useful  as  they  are 
practically  inevitable.  Mr.  Harriman,  who  perhaps 
more  than  any  other  single  man  personified  the  idea 
of  combination  and  centralized  control  in  the  rail- 
road field,  said,  in  his  address  at  the  opening  of  the 
Louisiana  Purchase  Exposition: 

Within  the  present  generation  vast  improvements 
have  been  made  in  railway  transportation.  It  was  im- 
possible to  supply  the  needs  of  commerce  by  the  rail- 
ways originally  constructed  and  operated.  It  became 
necessary  not  only  to  reconstruct  and  reequip  these 
lines,  but  to  bring  them  under  uniform  methods  and 
management,  which  was  possible  only  by  the  combina- 
tion and  unification  of  the  original  short  lines  of  railway 
into  systems,  each  under  one  management  or  control. 
The  combination  of  different  railroads  should  be  regu- 
lated by  law.  So  far  as  may  be  necessary,  the  public  in- 
terest should  be  protected  by  law;  but  in  so  far  as  the 
law  obstructs  such  combinations,  without  public  bene- 
fit, it  is  unwise  and  prejudicial  to  the  public  interest. 


284  E.  H.  HARRIMAN 

Another  great  master  in  the  art  of  railroading,  Mr. 
James  J.  Hill,  has  approved  railroad  combinations  in 
language  equally  clear  and  emphatic.  In  his  "High- 
ways of  Progress"  he  said: 

The  tendency  toward  combination  is  simply  a  part  of 
that  cooperation  in  the  production,  the  distribution, 
and  the  exchange  of  wealth  with  which  everybody  has 
been  familiar  for  centuries.  When  the  pioneers  in  this 
country  united  to  help  build  one  another's  houses,  when 
they  had  a  barn-raising,  it  was  combination.  When  the 
owners  of  land,  or  implements,  or  capital  in  any  other 
form,  entered  into  partnership  with  labor  to  produce 
more  wealth,  it  was  combination.  When  the  corpora- 
tion came  into  existence,  through  which  many  small 
amounts  of  capital  could  be  massed,  it  marked  an  era, 
just  as  much  as  when  two  men  first  lifted  by  their  united 
strength  some  stone  or  tree-trunk  too  heavy  for  them 
singly.  Exactly  as  society  and  the  work  of  the  commun- 
ity have  become  more  complex,  so  have  the  means  by 
which  material  ends  are  achieved  grown  larger  and  more 
powerful.  The  union  of  numerous  weak  and  discon- 
nected railroads  in  one  orderly  and  efficient  system  is 
part  of  the  natural  and  inevitable  evolution  of  united 
action  among  men.  Every  legitimate  railroad  combina- 
tion is  intended  to  produce,  and  does  produce,  better 
service  and  lower  rates  on  the  side  of  the  public,  and 
either  larger  or  more  certain  profits,  or  both,  on  the  side 
of  the  stockholder.^ 

These  economically  sound  statements  of  Karriman 

and  Hill  were  supported  and  confirmed  by  the  whole 

history  of  the  Union  Pacific-Southern  Pacific  lines. 

^  Highways  of  Progress,  by  James  J.  Hill  (New  York,  1912),  pp- 
1 14-15. 


RAILROAD  COMBINATIONS  285 

The  combination  policy,  it  is  true,  was  ultimately 
condemned  by  the  Interstate  Commerce  Commis- 
sion of  1907;  but  long  before  Mr.  Harriman  adopted 
it  with  such  brilliant  success,  it  had  been  distinctly 
approved  by  the  Interstate  Commerce  Commission 
of  1887.  Fourteen  years  prior  to  the  amalgamation 
of  the  Union  Pacific  and  Southern  Pacific  systems, 
Thomas  M.  Cooley,  who  was  perhaps  the  ablest  and 
most  far-sighted  chairman  that  the  Commission  ever 
had,  said,  in  the  Omaha  Board  of  Trade  case: 

The  more  completely  the  whole  railway  system  of  the 
country  can  be  created  as  a  unit,  as  if  it  were  all  under 
one  management,  the  greater  will  be  the  benefit  of  its 
service  to  the  public,  and  the  less  the  liability  to  unfair 
exactions. 

Although  Judge  Cooley  may  have  seen  the  ad- 
vantages of  combination  as  clearly  as  Mr.  Harriman 
or  Mr.  Hill  did,  he  could  hardly  have  foreseen  that, 
thirty  years  later,  the  Government  itself  would  do 
what  it  had  forbidden  Mr.  Harriman  to  do,  and  for 
precisely  the  reason  that  Mr.  Harriman  assigned, 
namely,  to  secure  greater  efficiency. 


T 


CHAPTER  XI 

CONTROL  OF  THE  BURLINGTON 

HE  struggle  for  control  of  the  Chicago,  Bur- 
lington &  Quincy  Railroad,  which  began  soon 
after  the  acquirement  of  the  Southern  Pacific  by  the 
Union  Pacific  in  1901,  was  one  of  the  most  striking 
and  spectacular  incidents  in  Mr.  Harriman's  career. 
Possession,  or  control  of  the  Burlington  was  desired 
by  two  powerful  and  far-sighted  managers,  each  of 
whom  was  striving  to  strengthen  his  position,  or 
increase  his  business,  in  the  great  transportation 
field  lying  w^est  of  the  Missouri  River.  This  field  was 
partly  occupied  at  that  time  by  four  important  rail- 
road systems,  namely,  the  Great  Northern,  the 
Northern  Pacific,  the  Union  Pacific,  and  the  Chicago, 
Burlington  &  Quincy.  The  first  two  of  these  sys- 
tems, which  were  dominated  by  James  J.  Hill  and 
J.  P.  Morgan,  extended  from  Lake  Superior  and  the 
Mississippi  River  to  the  Pacific  Coast;  but  neither  of 
them  had  an  outlet  of  its  own  in  Chicago.  The  Bur- 
lington had  its  eastern  terminus  in  Chicago,  but  it 
did  not  extend  westward  beyond  Denver.  Between 
that  city  and  the  Missouri  River,  however,  it  closely 
paralleled  the  Union  Pacific,  and  its  great  network 


CONTROL  OF  THE  BURLINGTON       2^i 

of  branches  and  feeders  in  Kansas,  Nebraska,  and 
Colorado  gathered  up  or  distributed  large  quantities 
of  freight  originating  in,  or  destined  for,  Union  Pa- 
cific territory. 

Such  being  the  situation,  it  was  almost  inevitable 
that  Hill  and  Harriman  should  both  seek  to  get  pos- 
session of  the  Burlington  system.  Hill  and  Morgan 
wanted  it  because  it  would  give  their  roads  an  en- 
trance into  Chicago,  while  Harriman  wanted  it, 
partly  because  it  was  a  competitor  for  business  in 
Union  Pacific  territory,  and  partly  because  it  might 
at  any  time  extend  its  main  line  from  Denver  to  the 
Pacific  Coast  and  thus  become  a  rival  of  the  Union 
Pacific  in  transcontinental  as  well  as  local  traffic. 

The  Burlington,  at  that  time,  was 

one  of  the  best  constructed,  best  managed,  and  most 
profitably  operated  systems  in  the  West.  ...  It  had  its 
own  line  from  Chicago  to  St.  Paul,  well  built,  well  han- 
dled, and  with  good  terminal  facilities  and  connections. 
It  had  a  network  of  lines  in  northern  Illinois;  reached 
Peoria  and  Quincy,  and  ran  thence  to  St.  Louis.  It 
covered  southern  Iowa  and  northern  Missouri  from 
Burlington  to  Omaha,  and  from  Omaha  to  St.  Joseph, 
St.  Louis,  and  Kansas  City.  Its  lines  stretched  across 
southern  Nebraska,  with  termini  at  Denver  and  Chey- 
enne. Northwest,  it  had  a  line  straight  up  to  and 
through  the  Black  Hills  to  Billings  in  Montana.  .  .  . 
The  total  length  of  lines  operated  by  it  in  1901,  exclu- 
sive of  systems  leased  or  otherwise  controlled,  was  791 1 
miles. 


288  E.  H.  HARRIMAN 

It  had  been  organized  under  another  name  as  early  as 
1849.  It  absorbed  one  line  after  another  and  built 
steadily,  growing  rich  and  powerful  because  it  ran 
through  one  of  the  best  trafhc  countries  in  the  West. 
Tributary  to  it  were  the  fertile  lands  of  Illinois,  Iowa, 
and  Nebraska,  the  coal  mines  of  Illinois  and  Iowa,  the 
river  valleys  of  the  Mississippi  and  its  tributaries,  and 
the  mining  industries  of  Colorado  and  the  Black  Hills. 
During  its  existence  it  had  paid  out,  up  to  1901,  cash 
dividends  of  more  than  $127,000,000,  besides  $6,700,000 
in  stock  distributed^ 

Its  capital  stock  was  approximately  $110,500,- 
000,  and  it  had  a  funded  debt  of  a  little  more  than 
$145,000,000. 

To  purchase  such  a  road  as  this,  or  even  to  acquire 
stock  control  of  it,  would  obviously  require  a  large 
amount  of  capital  —  a  greater  amount  than  Mr. 
Hill  at  that  time  could  secure.  He  discussed  the 
matter  with  friendly  financiers  in  London  as  early  as 
1897,  but  they  thought  it  too  big  an  enterprise  for 
the  Great  Northern  alone  to  undertake.  The  North- 
ern Pacific,  of  course,  was  equally  interested,  because 
it  too  needed  an  outlet  in  Chicago;  but  the  Northern 
Pacific  was  not  then  financially  strong  enough  to  par- 
ticipate. It  had  gone  into  the  hands  of  a  receiver  in 
the  panic  of  1893  and  was  not  reorganized  until  1896. 
J.  Pierpont  Morgan  and  the  Deutsche  Bank  then  took 

1  Life  of  James  J.  Hill,  by  J.  G.  Pyle  (New  York,  19 17),  vol.  11,  pp. 
1 14-15. 


CONTROL  OF  THE  BURLINGTON       289 

its  affairs  in  hand,  set  the  company  on  its  feet,  and 
allowed  Mr.  Hill,  in  behalf  of  the  Great  Northern, 
to  buy  about  $16,000,000  of  its  reorganization  stock. 
Subsequently  the  Great  Northern  added  largely  to 
its  holdings,  and  before  1900  the  two  roads  were 
practically  being  operated  as  a  single  system,  under 
Mr.  Hill's  management,  and  were  known  as  the 
"Hill  Lines."  Both  roads  were  then  prospering,  and 
when,  in  1901,  Mr.  Hill  renewed  his  effort  to  get 
control  of  the  Burlington,  he  had  the  support  of  both 
companies  and  the  powerful  backing  of  J.  P.  Morgan 
and  his  associates. 

Meanwhile,  however,  Mr.  Harriman  was  not  blind 
to  the  consequences  that  might  follow  a  consolida- 
tion of  the  Great  Northern,  Northern  Pacific,  and 
Burlington  systems  under  the  skillful  and  far-sighted 
management  of  his  rival  in  St.  Paul.  Such  a  com- 
bination was  sure  to  be  injurious  to  the  interests  of 
the  Union  Pacific,  and  might  even  affect  them  dis- 
astrously. 

Late  in  1899,  therefore,  Mr.  Harriman  and  Mr. 
Schiff  had  conferences  with  the  president  and  some 
of  the  leading  directors  of  the  Burlington  Company 
for  the  purpose  of  ascertaining  whether  the  pur- 
chase of  the  road  w^ould  be  possible.  The  negoti- 
ations, however,  came  to  nothing,  either  because 
the  managers  of  the  Burlington  wcire  disinclined  to 


290  E.  H.  HARRIMAN 

sell,  or  because  Harriman  and  Schiff  did  not  oflfer 
enough.^ 

In  the  spring  of  1900,  after  the  failure  of  these 
negotiations,  Mr.  Harriman  called  a  conference  of 
some  of  the  most  powerful  friends  of  the  Union  Pa- 
cific, for  the  purpose  of  considering  the  situation  and 
discussing  the  best  means  of  preventing  the  Morgan 
and  Hill  interests  from  buying  or  controlling  the 
Burlington  system.  There  were  present  at  that  con- 
ference E.  H.  Harriman,  Jacob  H.  Schiff  (senior 
partner  in  the  firm  of  Kuhn,  Loeb  &  Co.),  James 
Stillman  (president  of  the  National  City  Bank),  and 
George  J.  Gould.  Mr.  Harriman  pointed  out  the 
danger  involved  in  the  possible  acquirement  of  the 
Burlington  system  by  Morgan  and  Hill,  and  sug- 
gested that  it  be  averted,  or  at  least  minimized,  by 
the  formation  of  a  stock  pool  to  purchase  a  large 
enough  block  of  Burlington  shares  to  prevent  any 
hostile  interest  from  acquiring  control.  As  the  stock 
of  the  Burlington  was  very  widely  scattered,  and 
held  in  small  lots  of  sixty  or  seventy  shares  each  by 
fifteen  thousand  permanent  investors,  it  was  not  at 
all  certain  that  enough  of  it  could  be  obtained  in 

*  Mr.  Hill's  biographer  says  that  Mr.  Harriman  "made  an  ofTer, 
but  it  was  too  low  to  be  taken  into  serious  consideration.  Then,  be- 
lieving he  could  make  terms  satisfactory  to  himself  later,  he  went  back 
to  New  York."  (Pyle's  Life  of  James  J.  Hill,  vol.  li,  p.  121.)  Mr. 
Schitf ,  however,  could  not  remember  that  any  definite  offer  was  made. 


CONTROL  OF  THE  BURLINGTON       291 

the  open  market  to  give  the  Union  Pacific  a  substan- 
tial hold  on  the  company ;  but  the  experiment  seemed 
to  be  worth  trying.  It  was  decided,  therefore,  to 
form  the  pool  and  secure  as  much  Burlington  stock 
as  could  be  had  up  to  200,000  shares. 

Kuhn,  Loeb  &  Co.  began  purchasing  for  the  syn- 
dicate in  May,  and  by  the  6th  of  June  had  accumu- 
lated 69,800  shares.  The  market  supply  at  current 
prices  then  seemed  to  run  short  and  in  the  next  six 
weeks  the  syndicate  was  able  to  add  only  10,000 
shares  to  its  holdings.  By  that  time  it  had  become 
apparent  that  to  get  enough  of  the  stock  to  establish 
even  partial  control  of  the  company  would  be  dif- 
ficult, if  not  wholly  impracticable;  and  on  the  25th  of 
July  the  syndicate  suspended  operations,  after  hav- 
ing acquired  80,300  Burlington  shares  at  a  cost  of 
approximately  $10,000,000.  In  speaking  of  this  epi- 
sode, a  year  or  two  later,  Mr.  Hill  said  that  when 
the  Union  Pacific  interests  tried  to  get  control  of  the 
Burlington  by  stock  purchases,  they  "found  them- 
selves up  against  a  stone  wall  consisting  of  the  great 
body  of  small  shareholders"  (fifteen  thousand,  or 
more,  who  did  not  wish  to  sell  their  holdings).^ 

Throughout  August  and  September  Burlington 
stock  remained  inactive;  but  in  October  the  demand 
for  it  began  to  increase,  as  the  result,  apparently,  of 

*  Pyle's  Life  of  James  J.  Hill,  vol.  11,  p.  139. 


292  E.  H.  HARRIMAN 

bids  made  by  speculators,  or  friends  of  the  Hill  Lines, 
who  based  their  calculations  on  reports  that  the 
Great  Northern  and  Northern  Pacific  intended  to 
buy  the  Burlington  road.  From  that  time  the  price 
of  Burlington  shares  steadily  increased  until,  in  De- 
cember, it  reached  140.^ 

The  scanty  market  supply  of  the  stock  and  the 
increasing  demand  for  it  apparently  convinced  the 
members  of  the  Harriman  syndicate  that  they  could 
not  get  enough  of  it  to  answer  their  purpose;  so  about 
the  1st  of  November  they  decided  to  sell  their  shares, 
take  the  profit  they  had  made,  and  liquidate  the 
pool.  Kuhn,  Loeb  &  Co.  began  selling  on  the  7th  of 
November,  and  between  that  time  and  the  21st  of 
December  sold  60,300  shares  at  prices  ranging  from 
130  to  I40f.  The  20,000  shares  that  remained  were 
then  divided  among  the  members  of  the  syndicate, 
each  taking  5000  shares. 

The  next  steps  in  the  contest  for  possession  of  the 
Burlington  were  taken  by  Morgan  and  Hill.  In  tes- 
tifying as  a  witness  in  the  Northern  Securities  case, 
two  or  three  years  later,  Mr.  Morgan  said: 

*  Mr  Hill  always  contended  that  he  never  tried  to  buy  stock  con- 
trol of  the  Burlington  and  that  the  purchases  which  raised  the  price  of 
the  shares  from  130  to  i4of  in  the  fall  and  winter  of  1900  were  neither 
made  nor  inspired  by  him.  This  is  doubtless  true,  because  if  he  con- 
templated buying  the  road  outright  from  its  directors  and  stock- 
holders he  would  not  run  up  the  value  of  its  shares  by  bidding  for 
them  in  the  open  market.  That  would  only  encourage  the  owners  of 
the  property  to  demand  a  higher  price  for  it. 


CONTROL  OF  THE  BURLINGTON       293 

I  made  up  my  mind  that  it  was  essential  that  the 
Northern  Pacific  Railway  should  have  its  terminus 
practically  in  Chicago.  I  talked  it  over  with  a  great 
many  people  interested  in  the  Northern  Pacific,  and  I 
found  that  all  agreed  with  me,  and  the  question  came 
up  as  to  how  it  could  best  be  done.  I  came  to  the  con- 
clusion that  there  were  but  three  lines  available,  the  St. 
Paul,  the  Chicago,  Burlington  &  Quincy,  and  the  Wis- 
consin Central.  I  made  up  my  mind  that  I  would  rather 
have  the  St.  Paul.  Soon  after  that  I  met  Mr.  Hill  and  I 
said:  "Mr.  Hill,  I  think  the  best  thing  we  could  do — - 
I  think  your  line  perhaps  is  in  the  same  condition  — 
I  think  we  had  better  go  to  work  and  secure  the  St.  Paul 
road,  or  a  road  to  Chicago,  and  if  you  will  share  with  us 
we  will  do  it  together."  He  said:  "All  right;  who  would 
take  it  up?  "  I  said :  "  I  will.  I  think  we  had  better  take 
the  St.  Paul."  He  said  he  thought  we  had  better  take 
the  Burlington.  I  said  I  would  rather  have  the  St.  Paul, 
because  the  financial  responsibility  would  be  less.  He 
did  not  agree  with  me,  but  he  acquiesced  in  my  decision, 
and  I  took  it  up  with  the  directors  of  the  road.  They  re- 
fused to  sell  the  road  on  any  terms  —  they  would  not 
even  name  terms  —  so  I  went  to  Mr.  Hill  and  told  him ; 
'*You  can  go  ahead  and  see  what  you  can  do  with  the 
Burlington."^ 

Inasmuch  as  Mr.  Morgan's  main  object  was  to  get 
an  entrance  into  Chicago  for  the  Northern  Pacific  — 
the  road  in  which  he  was  most  interested  —  he 
would  have  been  quite  satisfied  with  the  acquisition 
of  the  Chicago,  Milwaukee  &  St.  Paul.  But  Mr.  Hill 
had  other  aims.  He,  too,  needed  a  Chicago  terminus, 
but  he  needed  still  more  some  means  of  independent 

*  J.  Pierpont  Morgan's  testimony  in  the  Northern  Securities  case. 


294  E.  H.  HARRIMAN 

access  to  the  prairie  States  of  Kansas  and  Nebraska 
where  he  could  market  his  lumber,  and  to  the  great 
distributing  centers  of  Omaha,  St.  Joseph,  St.  Louis, 
and  Kansas  City  where  he  could  get  cotton  and 
provisions  for  transportation  to  the  Pacific  States, 
Alaska,  and  the  Orient.  The  St.  Paul  line  would  not 
give  him  access  to  any  of  these  places,  while  the 
Burlington  would  open  them  all  to  him.  In  a  letter 
written  a  little  later  to  his  friend  and  associate,  Lord 
Mount  Stephen,  he  said: 

The  best  traffic  of  the  Great  Northern  and  Northern 
Pacific  is  cotton  and  provisions  west-  and  lumber  and 
timber  east-bound.  The  San  Francisco  lines  run  through 
the  cotton  country,  from  New  Orleans  through  Texas 
and  Arkansas.  The  great  provision  centers  are  Kansas 
City,  St.  Joseph,  Omaha,  Chicago,  and  St.  Louis,  none  of 
which  are  reached  directly  by  the  Great  Northern  or 
Northern  Pacific.  Both  companies  have  to  divide  the 
through  rate  with  some  other  line  to  reach  those  impor- 
tant points.  Now  as  to  lumber  from  the  Coast,  we  have 
to  divide  our  rate  with  lines  south  to  reach  Chicago,  Ill- 
inois, St.  Louis,  Iowa,  Nebraska,  Kansas,  etc.  The  Bur- 
lington lets  us  into  all  these  districts  and  commercial 
centers,  over  better  lines  and  with  better  terminals  than 
any  other  road.^ 

In  the  early  part  of  190 1,  after  having  been  author- 
ized by  Morgan  to  "go  ahead  and  see  what  he  could 
do  with  the  Burlington,*'  Hill  opened  negotiations 
with  the  president  and  directors  of  that  road,  with  a 

*  Pyle's  Life  of  James  J.  Hill,  vol.  11,  pp.  119-20. 


I 


Li 


CONTROL  OF  THE  BURLINGTON       295 

view  to  buying  it  outright  for  the  joint  use  of  the 
Great  Northern  and  Northern  Pacific.  Of  these 
negotiations  Mr.  Harriman  seems  to  have  been  un- 
aware. He  was  deeply  absorbed  at  that  time  in  the 
gigantic  task  of  rebuilding  the  Union  Pacific  and  in 
plans  for  the  improvement  of  the  Southern  Pacific, 
and  it  is  quite  possible  that  the  acquisition  of  the 
Burlington  had  temporarily  dropped  into  the  back 
of  his  mind,  as  a  matter  either  of  secondary  impor- 
tance, or  of  no  immediate  urgency.  Certain  it  is  that 
he  did  not  attempt  any  active  interference  with  the 
Hill-Morgan  plans,  as  he  probably  would  have  done 
if  they  had  been  known  to  him. 

Mr.  Hill  afterward  maintained  that  he  began  and 
carried  on  his  negotiations  with  the  Burlington  peo- 
ple quite  openly,  so  far,  at  least,  as  Union  Pacific 
interests  were  concerned.  In  a  letter  to  a  friend, 
written  on  the  i6th  of  May,  1901,  Mr.  Hill  said: 

To  remove  any  ground  for  the  charge  that  we  were 
working  secretly  to  acquire  the  Chicago,  Burlington  & 
Quincy  I  said  to  [a  representative  of  the  Union  Pacific 
interests]  in  January  that  if  he  at  anytime  heard  that  we 
were  conferring  with  the  "Q"  board  of  directors  looking 
to  the  joint  acquisition  of  the  property,  I  wanted  to  be 
the  first  one  to  tell  him  that  we  intended  to  take  the 
matter  up  seriously.  In  April,  after  Mr.  Morgan  had 
gone  abroad  and  the  Burlington  matter  was  taking  def- 
inite shape,  I  again  told  him  that  matters  were  progress- 
ing toward  a  close.  ...  I  told  him  our  plan  was  an  open 


296  E.  H.  HARRIMAN 

and  fair  attempt  to  agree  with  the  "Q'*  board  as  the 
only  means  of  gaining  control  of  the  property.^ 

If  the  unnamed  person  to  whom  Mr.  Hill  made 
this  statement  was  really  a  representative  of  Union 
Pacific  interests,  he  did  not  pass  on  the  information 
to  the  men  who  were  actively  in  control  of  Union 
Pacific  affairs,  namely,  Harriman  and  Schiff.  Nei- 
ther of  these  gentlemen  had  any  knowledge  of  the 
Hill-Morgan  negotiations  until  some  time  in  March, 
1901 .  As  soon  as  they  became  aware  of  the  situation, 
they  asked  Mr.  Hill  to  meet  them  in  conference  at 
the  house  of  George  F.  Baker,  a  friend  and  associate 
of  Mr.  Hill  in  New  York.  The  interview,  which  was 
brief,  failed  to  establish  any  basis  for  agreement  or 
compromise.  Harriman,  in  behalf  of  the  Union  Pa- 
cific, asked  to  be  given  one-third  interest  in  the  pur- 
chase of  the  Burlington  and  offered  to  furnish  one 
third  of  the  purchase  money.  Hill  declined  even  to 
take  this  proposition  into  consideration.  "Very 
well,'*  Harriman  is  reported  to  have  said,  "it  is  a 
hostile  act  and  you  must  take  the  consequences.*' 

In  a  signed  statement  published  nine  months 
later  in  the  St.  Paul  "Globe,**  Mr.  Hill  explained  in 
the  following  words  his  refusal  to  allow  the  Union 
Pacific  to  participate  in  the  Burlington  purchase: 

About  a  year  ago,  the  Union  Pacific  Company  bought 

»  Pyle's  Lije  of  James  J.  Hill,  vol.  ll,  pp.  138-39. 


CONTROL  OF  THE  BURLINGTON       297 

the  Huntington  and  other  interests  in  the  Southern  Pa- 
cific, and  at  the  same  time  made  an  effort  to  buy  the  con- 
trol of  the  Chicago,  Budington  &  Quincy.  With  these 
Hues  in  the  hands  of  the  Union  Pacific  interests,  the 
Northern  Pacific  and  Great  Northern  would  be  largely 
shut  out  of  the  States  of  Nebraska,  Kansas,  Missouri, 
South  Dakota,  Iowa,  Illinois,  and  Wisconsin,  except  by 
using  other  lines  of  railway,  some  of  which  were  in  the 
market  for  sale  and  might  at  any  time  pass  under  the 
control  of,  or  be  combined  with.  Union  Pacific  interests. 
We,  then,  with  the  Northern  Pacific,  made  proposals  to 
the  directors  of  the  Burlington  to  buy  their  entire  prop- 
erty. When  this  transaction  was  about  being  closed,  the 
people  who  represented  the  Union  Pacific  Company, 
and  who  had  previously  tried  to  buy  the  Burlington, 
asked  to  be  allowed  to  share  with  us  in  the  purchase  of 
that  Company.  This  proposal  we  refused,  for  the  reason 
that  it  would  defeat  our  purpose  in  buying  the  Burling- 
ton, and,  further,  it  was  against  the  law  of  several  of  the 
States  in  which  the  largest  mileage  of  the  Burlington 
was  located.^ 

If  Mr.  Hill  supposed  that,  by  refusing  to  allow  the 
Union  Pacific  to  participate  in  the  purchase  of  the 
Burlington,  he  could  thwart  the  purposes  of  as  reso- 
lute and  resourceful  a  man  as  Mr.  Harriman,  he 
reckoned  without  his  host.  Absorbed  in  the  affairs  of 
the  two  great  Pacific  systems  which  had  so  recently 
come  under  his  control,  Harriman  may  have  lost 
sight  temporarily  of  the  Burlington  danger;  but 
when  it  became  imminent,  he  acted  with  character- 
istic vigor,  and  met  the  unlooked-for  move  of  his 
*  St.  Paul  Globe,  December  22,  1901. 


298  E.  H.  HARRIMAN 

adversaries  with  a  counter-move  which,  in  the  words 
of  Mr.  Hill's  biographer,  was  so  ''daring"  in  concep- 
tion and  so  ''swift  and  unsparing  in  execution"  as  to 
"command  admiration  from  friend  and  foe."  * 

When  Mr.  Harriman  discovered  that  the  Burling- 
ton had  been  captured  and  taken  into  the  camp  of 
the  enemy,  he  determined  to  make  a  sudden,  sur- 
prise attack  on  that  camp  itself.  He  had  lost  the 
C,  B.  &  Q.;  but  there  was  nothing  to  prevent  him 
from  seizing  the  Northern  Pacific  by  secretly  buying 
a  majority  of  its  capital  stock.  He  would  then  con- 
trol not  only  that  company,  but  the  half-interest 
that  it  had  just  acquired  in  the  Burlington.  By  this 
move  Morgan  would  be  ousted  and  the  joint  owner- 
ship of  the  disputed  property  would  be  vested  in  the 
Great  Northern  and  the  Union  Pacific,  with  the  lat- 
ter in  the  stronger  if  not  the  dominant  position.  As 
Mr.  Hill's  biographer  has  justly  said: 

The  boldness  of  this  plan,  so  different  now  in  magni- 
tude from  the  old  days  when  Mr.  Villard  had  realized  it 
—  $78,000,000  to  put  up  instead  of  $8,000,000  —  allied 
it  to  a  work  of  genius.  From  those  grim  old  lions  [Mor- 
gan and  Hill]  who  guarded  the  way,  the  quarry  was  to  be 
snatched  before  they  sensed  the  presence  of  an  enemy. 
The  implications  of  the  project  were  tremendous.  Sup- 
pose the  Union  Pacific  gained  control  of  the  Northern 
Pacific.  At  once  the  Great  Northern  would  have  to 
make  terms  with  its  new  owners,  or  bear  the  brunt  of  in- 

*  Pyle's  Life  oj  James  J.  Hill,  vol.  ii,  p.  141. 


CONTROL  OF  THE  BURLINGTON       299 

cessant  attacks  along  two  thousand  miles  of  battle 
front.  It  would  be  shut  into  the  narrow  strip  between 
its  line  and  the  Canadian  border.  As  the  Union  Pacific 
would  succeed  also  to  a  half-interest  in  the  Burlington, 
the  situation  there  would  be  a  permanent  deadlock. 
.  .  .  There  could  be  but  one  issue  from  a  position  so  in- 
tolerable. He  [Mr.  Hill]  would  have  to  make  the  best 
terms  he  could.  And  the  terms  dictated  by  an  interest 
that  would  then  reach  from  New  Orleans  and  Galveston 
to  Winnipeg,  and  from  San  Francisco,  Portland,  and 
Tacoma  to  Chicago,  St.  Paul,  and  Duluth,  were  not 
likely  to  be  tolerable.  The  victor  could  make  them  al- 
most what  he  pleased.^ 

Although  an  agreement  between  Mr.  Hill  and  the 
directors  of  the  Burlington  was  virtually  concluded  in 
March,  1901,  the  purchaseand  sale  were  not  formally 
authorized  until  about  a  month  later.  On  the  20th  of 
April,  the  directors  of  the  Great  Northern  empow- 
ered its  president,  with  the  cooperation  and  partici- 
pation of  the  Northern  Pacific  Company,  to  buy  the 
whole,  or  not  less  than  two  thirds,  of  the  Burlington 
capital  stock.  The  two  companies  thereupon  bought 
1,075,772  shares,  or  96.79  per  cent  of  the  whole,  and 
in  payment  therefor  issued  their  joint  collateral  trust 
bonds  and  scrip  to  the  amount  of  $215,154,000.  .The 
price  that  they  had  to  pay  was  high.  The  market 
value  of  the  shares  was  less  than  180,  but  the  Bur- 
lington directors  and  stockholders  would  not  sell  for 
less  than  200,  and  that  was  the  price  paid.    Mr. 

*  Pyle's  Life  of  James  J.  Hill,  vol.  11,  pp.  141-42. 


300  E.  H.  HARRIMAN 

Hill,  however,  believed  that  he  had  made  a  good 

bargain. 

It  is  true  [he  said],  we  pay  a  great  price  for  the  prop- 
erty. This  could  not  be  avoided.  .  .  .  The  Burlington 
road  had  a  very  heavy  sinking  fund.  For  many  years 
the  miles  of  main  track  —  something  more  than  8000 
miles  —  had  a  bonded  debt,  less  the  sinking  fund,  of 
$15,800  a  mile,  and  its  stock  was  about  $13,000  a  mile. 
Take  the  Burlington  stock  at  200,  and  add  to  it  the 
bonded  debt  per  mile  of  the  road,  and  it  would  give  the 
average  cost  of  the  Burlington  about  $42,000  a  mile, 
which  is  about  what  it  cost  us;  that  is,  $10,000  or  $12,- 
000  less  a  mile  than  any  of  these  granger  roads  are  sell- 
ing at  on  the  market.  In  other  words,  the  Burlington 
was  the  cheapest  property  altogether  and  reached  the 
points  we  desired  to  reach;  and  it  would  cost  us  less 
money  per  mile  than  it  would  to  have  acquired  any 
other. 

Satisfied  that  they  had  checkmated  the  Union 
Pacific  and  made  the  Burlington  safe,  Mr.  Morgan 
sailed  for  Italy,  while  Mr.  Hill  went  to  the  Pacific 
Coast  to  look  after  his  interests  there.  Harriman  and 
SchifT,  in  the  meantime,  were  swiftly  and  secretly 
carrying  out  their  plan  to  get  control  of  the  Northern 
Pacific  by  buying  more  than  half  its  capital  stock. 
The  first  purchases  seem  to  have  been  made  by 
Kuhn,  Loeb  &  Co.  for  firm  account;  but  on  the  15th 
of  April  they  turned  over  to  Mr.  Harriman  all  that 
they  had  accumulated  —  150,000  shares  of  the  com- 
mon and   100,000   shares  of   the   preferred  —  and 


CONTROL  OF  THE  BURLINGTON       301 

thenceforward  bought  steadily  and  aggressively  for 
account  of  the  Union  Pacific.  When  they  began 
buying,  early  in  April,  Northern  Pacific  shares  were 
selling  at  102  for  the  common  and  loi  for  the  pre- 
ferred; but  under  the  influence  of  their  purchases, 
together  with  a  large  speculative  demand  from  other 
sources,  quotations  gradually  advanced,  on  enor- 
mous transactions,  to  131  for  the  common  and  109 
for  the  preferred. 

This  speculation  in  Northern  Pacific  shares  was 
not  regarded,  at  the  time,  as  anything  extraordinary. 
Nobody  suspected  that  the  Union  Pacific  was  ac- 
cumulating the  stock,  and  the  general  impression 
seemed  to  be  that  it  was  being  bought  by  brokers,  or 
by  the  general  public,  in  anticipation  of  the  enhanced 
value  that  it  would  have  as  a  result  of  the  Burlington 
purchase.  Even  the  Northern  Pacific  people  took 
this  view,  and  regarding  such  anticipations  as  too 
sanguine,  they  sold  their  holdings,  in  order  to  take 
advantage  of  what  seemed  to  them  absurdly  high 
prices.  Mr.  Hill  himself  did  not  take  the  possibility 
of  losing  control  of  the  Northern  Pacific  into  serious 
consideration.   In  speaking  of  it  afterward  he  said: 

As  I  remember  it,  one  of  our  directors  raised  the  ques- 
tion that  inasmuch  as  the  purchase  of  the  Burlington 
stock,  and  the  creation  of  a  bond  to  pay  for  it,  involved 
the  joint  and  several  liability  of  the  entire  amount  of  the 
purchase,  it  was  a  matter  of  consequence  to  the  Great 


302  E.  H.  HARRIMAN 

Northern  to  know  that  the  Northern  Pacific  would  not 
pass  into  the  hands  of  people  who  might  be  interested  in 
other  directions  —  in  developing  in  other  directions  or 
other  sections  of  the  country;  and  I  remember  I  an- 
swered that,  with  what  my  friends  held  at  that  time, 
and  what  Morgan  &  Co.  held,  we  would  have  some- 
where in  the  neighborhood  of  35  or  40  millions  of  the 
stock  out  of  a  total  of  155  millions,  which  is  larger  than 
is  usually  held  in  any  of  the  larger  companies.  I  did  not 
think,  at  the  time,  that  it  was  at  all  likely  that  anybody 
would  undertake  to  buy  in  the  market  the  control  of  155 
millions  of  stock.^ 

Hill's  friends  were  as  unaware  of  Mr.  Harriman's 
operations  as  Hill  himself  was,  and  in  many  cases 
they  played  directly  into  their  adversaries'  hands  by 
selling  their  stock  to  brokers  who  were  buying  for 
Kuhn,  Loeb  &  Co.  One  large  holder,  for  example, 
sold  to  them  35,000  shares  in  a  single  lot.  Even  the 
Northern  Pacific  Company,  tempted  by  the  high 
prices,  sold  its  own  stock.  As  late  as  the  2d  of  May, 
one  of  its  subsidiary  corporations,  which  happened 
to  have  in  its  treasury  13,000  Northern  Pacific  shares, 
sold  them  by  direction  of  the  Northern  Pacific  board 
itself.  So  unsuspecting  were  Morgan  &  Co.  that  on 
the  same  day  they  sold  10,000  shares  which  had  hap- 
pened to  come  into  their  hands  in  the  ordinary  course 
of  business.  All  of  this  stock,  or  most  of  it,  went 
directly  to  Kuhn,  Loeb  &  Co.,  who  were  buying  for 
Harriman  and  the  Union  Pacific. 

*  Pyle's  Life  of  James  J.  Hill,  vol.  il,  p.  144. 


CONTROL  OF  THE  BURLINGTON       303 

Toward  the  last  of  April,  Mr.  Hill  finally  took 
alarm.  He  happened,  just  then,  to  be  in  Seattle,  and 
noticing  in  the  market  reports  the  enormous  transac- 
tions in  Northern  Pacific  stock  and  the  rapid  ad- 
vance in  the  quotations  of  both  common  and  pre- 
ferred, he  felt  a  premonition  of  impending  trouble. 
He  did  not  know  what  had  happened,  or  what  was 
likely  to  happen;  but  inasmuch  as  his  ally,  Mr.  Mor- 
gan, was  in  Europe,  he  thought  that  he  himself  ought 
to  be  in  New  York,  where  he  could  investigate  the 
exhibition  of  fireworks  in  Northern  Pacific  shares, 
find  out  what  caused  it,  and  follow  closely  the  course 
of  events.  He  therefore  called  upon  the  operating 
ofificials  of  the  Great  Northern  to  give  him  at  once 
the  fastest  possible  special  train  to  St.  Paul  with 
unlimited  right  of  way  over  everything.  The  super- 
intendent of  the  western  division  furnished  the  "spe- 
cial" immediately  and  said  to  the  locomotive  en- 
gineer: ''The  road  is  yours  to  St.  Paul;  everything 
else  on  the  line  will  be  held  up  to  let  you  pass."  The 
train  pulled  out  of  Seattle  with  a  clear  track  ahead  of 
it  and  made  the  quickest  run  to  the  Mississippi 
River  that  had  ever  been  made  up  to  that  time. 

Mr.  Hill  arrived  in  New  York  on  the  afternoon  of 
Friday,  May  3d,  and  went  at  once  to  the  ofifice  of 
Kuhn,  Loeb  &  Co.  to  see  Mr.  Schiff.^  In  reply  to  an 

*  Hill  and  Schiff  were  old  personal  friends  and  the  latter  had  been  a 
director  in  the  Great  Northern  Company. 


304  E.  H.  HARRIMAN 

inquiry  as  to  the  meaning  of  the  rapid  rise  in  North- 
ern Pacific  shares,  Schiff  informed  Hill  that  Kuhn, 
Loeb  &  Co.  were  buying  them  on  orders  from  the 
Union  Pacific.  "  But,"  said  Hill,  ''you  can't  get  con- 
trol. The  Great  Northern,  Morgan,  and  my  friends 
were  recently  holding  $35,000,000  or  $40,000,000 
of  Northern  Pacific  stock,  and  so  far  as  I  know 
none  of  it  has  been  sold."  ''That  may  be,"  replied 
Schiff,  "but  we've  got  a  lot  of  it.  You  secretly 
bought  the  Chicago,  Burlington  &  Quincy  and  re- 
fused to  give  us  a  fair  share;  now  we're  going  to  see 
if  we  can't  get  a  share  by  purchasing  a  controlling 
interest  in  the  Northern  Pacific." 

Hill,  after  a  brief  talk,  left  the  office,  saying  that 
he  did  not  believe  it  could  be  done.  He  evidently 
feared,  however,  that  it  might  be  done,  because  on 
the  following  day,  after  making  further  investiga- 
tions, he  went  to  Robert  Bacon,  of  the  firm  of  Mor- 
gan &  Co.,  told  him  that  the  situation  was  critical, 
and  suggested  that  it  might  be  well  to  cable  J.  Pier- 
pont  Morgan,  who  was  then  in  Italy,  for  authority 
to  buy  at  least  150,000  shares  of  Northern  Pacific 
stock,  preferably  the  common,  which,  for  purposes  of 
control,  was  more  valuable  than  the  preferred.  The 
cablegram  was  sent  to  Morgan  after  the  close  of  the 
Stock  Exchange,  Saturday,  May  4th. 

But  if  Hill  was  anxious  with  regard  to  the  out- 


CONTROL  OF  THE  BURLINGTON       305 

come  of  the  contest,  Harriman  was  hardly  less  so. 
Kuhn,  Loeb  &  Co.  had  advised  him,  Friday  night, 
that  they  had  bought,  for  Union  Pacific  account, 
about  370,000  shares  of  the  common  stock  of  the 
Northern  Pacific  Company  and  about  420,000  shares 
of  the  preferred,  making  a  total  of  approximately 
$79,000,000.  This  was  a  clear  majority  of  the  two 
classes  of  stock  taken  together,  but  it  lacked  30,000 
or  40,000  shares  of  a  majority  in  the  common  taken 
separately.  This  deficiency  in  the  common  gave  Mr. 
Harriman  a  feeling  of  uneasiness,  which  he  after- 
ward expressed  in  the  following  words: 

On  the  morning  of  Saturday,  May  4th,  I  was  at  home, 
ill.  We  had  somewhat  over  $42,000,000  of  the  preferred 
shares  of  the  Northern  Pacific,  or  a  clear  majority  of 
that  issue,  and  somewhat  over  $37,000,000  of  the  com- 
mon shares,  which  lacked  being  a  majority  of  the  com- 
mon by  about  40,000  shares.  But  we  had  a  majority  of 
the  entire  capital  stock,  as  represented  by  both  the  com- 
mon and  preferred  shares,  and  I  had  been  competently 
advised,  and  was  convinced,  that  this  holding  was  suffi- 
cient to  enable  us  to  control  the  Company.  Neverthe- 
less, the  fact  that  the  Northern  Pacific  could,  on  the  ist 
of  January  following,  retire  the  preferred  shares,  of 
which  we  had  a  majority,  bothered  me  somewhat,  and  I 
felt  that  we  ought  not  to  leave  open  to  them  any  chance 
of  retiring  our  preferred  stock  and  leaving  us  with  a 
minority  interest  in  the  common  stock,  or  involving  us 
in  litigation  about  it. 

Some  of  our  friends,  however,  felt  that  our  position 
was  secure  enough,  and  that  it  would  be  foolish  to  go  in 


3o6  E.  H.  HARRIMAN 

and  buy  more  Northern  Pacific  stock  at  the  prices  which 
then  prevailed.  Nevertheless,  I  made  up  my  mind  that 
we  should  have  a  majority  of  the  common  shares,  and  on 
that  morning  I  called  up  Heinsheimer  (one  of  the  part- 
ners in  the  firm  of  Kuhn,  Loeb  &  Co.)  and  gave  him  an 
order  to  buy,  at  the  market,  40,000  shares  of  Northern 
Pacific  common  for  my  account.  He  said:  "All  right"; 
and  as  dealings  that  day  in  Northern  Pacific  common 
shares  continued  to  be  very  heavy,  I  felt  that,  come 
what  might,  I  had  control  of  Northern  Pacific,  common 
stock  and  all. 

On  Monday,  the  6th  of  May,  Northern  Pacific  came 
strong  from  London  and  opened  with  a  burst  of  activity 
in  the  Street;  and  having  had  no  confirmation  from 
Kuhn,  Loeb  &  Co.  of  the  purchase  of  the  40,000  shares 
of  Northern  Pacific  which  I  had  ordered  on  Saturday 
morning,  I  called  Heinsheimer  up  and  asked  him  why  I 
had  gotten  no  report  of  the  execution  of  my  order.  He 
told  me  that  before  giving  out  the  order  he  had  to  reach 
Schiff ,  who  was  at  the  synagogue.  Schiff  instructed  him 
not  to  execute  the  order  and  said  that  he  (Schiff)  would 
be  responsible.  I  then  knew  that  matters  were  in  a  seri- 
ous way  and  that  the  whole  object  of  our  work  might  be 
lost.  Meanwhile,  the  day  (Monday)  had  become  so  ad- 
vanced, and  prices  of  Northern  Pacific  shares  had  gone 
so  high  that  I  realized  the  impossibility  of  buying,  in 
such  a  market,  40,000  shares  of  stock.  So  I  determined 
to  go  down  and  see  Schiff,  find  out  what  it  was  all  about, 
and  fight  the  question  out  with  what  material  I  had  in 
hand.^ 

SchiflF*s  decision  to  ignore  Harriman's  order  was 

based  on  the  belief  —  which  is  understood  to  have 

been  shared  by  James  Stillman  —  that  inasmuch  as 

*  As  related  by  Mr.  Harriman  to  G.  W.  Batson. 


CONTROL  OF  THE  BURLINGTON       307 

the  Union  Pacific  had  a  clear  majority  of  all  the 
shares  of  the  Northern  Pacific,  taking  common  and 
preferred  together,  it  would  be  unnecessary  and 
wasteful  to  buy  any  more.  But  this  proved  to  be  a 
tactical  mistake.  If  Harriman  had  been  well  enough 
to  go  downtown  and  see  SchifT  personally,  his  influ- 
ence and  his  arguments  might  have  overcome  the 
banker's  reluctance  to  make  further  purchases;  but 
it  must  not  be  forgotten  that  the  time  available  for 
deliberation  and  action,  on  that  critical  Saturday 
morning,  was  short.  There  were  only  a  few  hours  in 
which  business  could  be  transacted  before  the  Stock 
Exchange  closed  at  noon ;  Schiff  had  neither  time  nor 
opportunity  to  consult  Harriman,  and  he  was  forced 
to  decide  quickly  on  his  own  best  judgment.  But 
the  consequences  were  unfortunate.  Before  Harri- 
man found  out,  on  Monday,  that  his  order  to  Kuhn, 
Loeb  &  Co.  had  not  been  executed,  the  opportunity 
to  get  a  majority  of  the  common  stock  had  passed. 

Some  time  in  the  course  of  Sunday,  May  5th,  Rob- 
ert Bacon  received  a  cablegram  from  J.  P.  Morgan 
authorizing  him  to  go  ahead  and  buy  150,000  shares 
of  Northern  Pacific  common  at  the  market.  Im- 
mediately the  Hill-Morgan  forces  took  the  field. 
With  the  reopening  of  the  Stock  Exchange,  Monday 
morning,  their  brokers  swarmed  over  the  floor,  bid- 
ding eagerly  for  Northern  Pacific  common,  and  tak- 


3o8  E.  H.  HARRIMAN 

ing  all  that  could  be  had  at  prices  that  advanced 
steadily  from  no  to  130.  Tuesday  they  continued 
this  aggressive  buying,  and  ran  the  price  of  the 
common  up  to  149!  —  an  advance  of  nearly  forty 
points  in  two  business  days.^  But  they  attained  their 
object.  Before  Tuesday  night  they  were  in  posses- 
sion of  the  150,000  shares  that  Morgan  had  author- 
ized them  to  buy.  With  this  addition  to  their  hold- 
ings, the  Morgan-Hill  interests  had  something  like 
30,000  shares  more  of  the  common  than  they  needed ; 
but  they  had  only  a  minority  in  the  preferred,  and 
lacked  also  a  majority  in  the  common  and  preferred 
taken  together.  Of  the  whole  capital  stock  of  the 
Northern  Pacific  Company,  Harriman  and  the  Un- 
ion Pacific  owned  781,080  shares,  or  about  6000  more 
than  one  half.  As  both  classes  of  stock  had  equal 
voting  rights,  this  would  enable  Harriman  to  choose 
a  majority  of  the  board  of  directors  at  the  next  elec- 
tion ;  but  whether  it  would  give  him  power  enough  to 
prevent  the  retirement  of  the  preferred  shares,  in 
which  he  had  preponderating  strength,  was  an  un- 
settled question.  So  far  a^  control  of  the  common 
was  concerned,  he  had  lost  the  fight. 

Hiirs  biographer  attributes  this  partial  defeat  of 
the  Union  Pacific  plan  to  Harriman's  "oversight"  in 
not  taking  into  account  the  right  of  the  Northern 
*  Commercial  6*  Financial  Chronicle ^  May  18,  1901. 


CONTROL  OF  THE  BURLINGTON       309 

Pacific  Company  to  retire  its  preferred  stock  and 
thus  to  leave  him  with  only  a  minority  of  the  com- 
mon.^ But  Harriman  did  not  overlook  this  possibil- 
ity. On  the  contrary;  it  was  precisely  for  this  reason 
that  he  ordered  Kuhn,  Loeb  &  Co.  to  buy  40,000 
more  shares  of  the  common  on  the  morning  of  Sat- 
urday, May  4th.  He  believed,  with  Schiff,  that  the 
holders  of  a  majority  of  all  the  stock  —  common  and 
preferred  together  —  could  prevent  the  retirement 
of  the  preferred;  ^  but  he  did  not  wish  to  take  any 
chances  of  litigation  over  this  question.  He  wanted 
to  be  sure,  and  his  failure  to  make  sure  was  due 
not  to  oversight,  but  to  accident.  Illness  alone 
kept  him  away  from  the  firing  line  when  the  con- 
test reached  its  final  and  decisive  stage.  In  his 
absence  and  without  his  knowledge  his  bankers 
ceased  buying,  while  Morgan  &  Co.  went  into  the 
field,  practically  unopposed,  and  secured  150,000 
shares. 

Although  the  contest  for  control  of  the  Northern 
Pacific  and  the  Burlington  was  carried  on  with  more 
or  less  secrecy  and  was  imperfectly  understood  by 
the  general  public,  the  rapid  and  sensational  advance 
of  forty  points  in  Northern  Pacific  common  created 

^  Pyle's  Life  of  James  J.  Hill,  vol.  11,  pp.  141  and  153. 

'  This  belief  was  based  on  the  unanimous  opinion  of  five  eminent 
authorities  on  corporation  law  whom  Mr.  Harriman  had  consulted. 
{Edward  Henry  Harriman,  by  Otto  H.  Kahn,  New  York,  191 1,  p.  32.) 


3IO  E.  H.  HARRIMAN 

great  excitement  in  Wall  Street,  and  not  only  led  to 
an  avalanche  of  '* short'*  selling  of  the  virtually 
''cornered"  stock,  but  brought  on,  two  days  later, 
the  memorable  Northern  Pacific  panic. 


CHAPTER  XII 
NORTHERN  PACIFIC  PANIC 

THE  contest  for  control  of  the  Burlington, 
which  ultimately  developed  into  a  struggle  for 
possession  of  the  Northern  Pacific,  ended,  so  far  as 
the  competing  interests  were  concerned,  on  the  after- 
noon of  Tuesday,  May  7th.  Each  of  the  contending 
parties  then  believed  that  it  had  won  a  victory  over 
the  other.  Harriman  and  Schiff  were  sure  that  they 
owned  a  majority  of  all  the  Northern  Pacific  stock, 
taking  common  and  preferred  shares  together,  while 
Morgan  and  Hill  were  equally  confident  that  they 
had  a  safe  majority  of  the  common,  which  would 
enable  them  to  retire  the  preferred  and  thus  leave 
the  Union  Pacific  with  only  a  minority  holding  in 
the  capital  that  would  then  remain.  Both  sides, 
therefore,  ceased  buying.  Their  purchases,  however, 
had  given  a  great  impetus  to  speculation  in  Northern 
Pacific  common.  Nobody  knew,  with  certainty,  who 
was  accumulating  this  stock,  or  why  it  had  risen 
from  112  to  149!  in  less  than  a  week;  but  more  than 
half  of  the  public  believed  that  the  common  shares 
v/ere  selling  far  above  their  intrinsic  value  and  that 
they  must  soon  fall  to  something  like  their  normal 


312'  E.  H.  HARRIMAN 

level.  Scores  of  speculators,  therefore,  sold  them 
'* short,"  with  the  expectation  of  being  able  to  buy 
them  for  delivery,  a  few  days  later,  at  much  lower 
figures.^  In  this  expectation,  however,  they  were 
grievously  disappointed.  Northern  Pacific  common 
instead  of  declining,  made  a  further  advance  of  more 
than  fifty  points,  simply  because  everybody  wanted 
it  while  few  brokers  had  any  of  it  for  sale.  When, 
therefore,  the  "shorts"  were  called  upon  to  deliver, 
they  found  it  almost  impossible  to  buy  or  borrow 
shares  enough  to  meet  their  urgent  needs.  Prices 
continued  to  advance ;  money  was  scarce  and  hard  to 
get,  and,  in  order  to  escape  involuntary  bankruptcy, 
scores  of  brokers  were  forced  to  sell  their  other  stocks, 
at  ruinous  prices,  and  use  the  proceeds  in  buying 
Northern   Pacific.    This,  of  course,  depressed  the 

*  For  the  benefit  of  readers  who  are  not  familiar  with  Wall  Street 
operations,  it  may  perhaps  be  well  to  explain  that  when  a  dealer  sells 
stock  "short,"  he  sells  what  he  does  not  own,  with  the  expectation  of 
buying  it  later  at  a  lower  price.  By  the  rules  of  the  Stock  Exchange  he 
must  make  delivery  to  the  purchaser  on  the  next  day  after  the  sale,  or 
be  declared  insolvent.  If,  however,  the  stock  that  he  has  sold  does  not 
fall  low  enough  so  that  he  can  "  cover"  at  a  profit,  he  borrows  it  from  a 
dealer  who  happens  to  have  it,  paying  the  latter  a  specified  sum  for  the 
accommodation.  With  this  borrowed  stock  he  makes  delivery  to  the 
purchaser,  and  then,  until  he  decides  to  buy  the  stock  of  which  he  is 
"short,"  he  continues  borrowing  it  from  day  to  day  at  whatever  rates 
may  be  current.  It  sometimes  happens  that  the  whole  marketable 
supply  of  a  particular  security  has  been  bought  by  one  or  two  persons, 
or  groups,  who  hold  it,  either  for  speculative  purposes  or  for  control. 
In  the  technical  language  of  the  Street  such  a  stock  is  said  to  be 
"cornered,"  and  dealers  who  must  buy  or  borrow  it  may  be  compelled 
to  pay  for  it  almost  any  price  that  the  owners  may  choose  to  demand. 


NORTHERN  PACIFIC  PANIC  313 

general  market,  unsettled  confidence,  and  eventu- 
ally brought  on  one  of  the  worst  panics  that  Wall 
Street  had  ever  known. 

As  early  as  Wednesday  noon  it  became  apparent 
that  trouble  was  impending,  and  on  Thursday,  May 
9th,  when  the  storm  finally  broke,  Northern  Pacific 
common  sold  up  to  $1000  a  share,  while  other  stand- 
ard securities  were  offered  at  half  their  intrinsic 
value.  United  States  Steel,  for  example,  declined 
from  46  to  24 ;  Atchison,  Topeka  &  Santa  Fe  from  76 
to  43,  and  Delaware  &  Hudson  from  163  to  105. 
Call  money,  meanwhile,  was  bid  up  to  60  per  cent, 
and  little  could  be  had  even  at  that  exorbitant  rate. 
Before  noon  on  Thursday  nearly  half  the  brokerage 
houses  in  Wall  Street  were  technically  insolvent, 
simply  because  they  could  neither  buy  nor  borrow 
the  Northern  Pacific  shares  that  they  had  wSold  short. 

Such  a  state  of  affairs  threatened  general  ruin,  and 
all  the  conservative,  constructive  forces  in  the  finan- 
cial district  were  set  in  motion  to  support  the  mar- 
ket and  reestablish  confidence.  At  the  suggestion 
of  Frederick  T.  Tappan,  fifteen  prominent  banks 
formed  a  "pool,"  or  temporary  syndicate,  to  relieve 
the  money  market  by  loaning  about  $20,000,000, 
and  at  the  same  time  several  other  banks,  including 
Morgan  &  Co.  and  Kuhn,  Loeb  &  Co.,  agreed  not  to 
call  for  the  delivery  of  short-sold  shares  of  Northern 


314  E.  H.  HARRIMAN 

Pacific  stock  that  day.  A  little  later,  Mr.  Schiff, 
with  the  approval  of  Mr.  Harriman,  made  a  proposi- 
tion to  Robert  Bacon,  of  J.  P.  Morgan  &  Co.,  that 
the  "shorts'*  be  permitted  to  settle  with  both  firms 
at  $150  a  share  for  all  the  Northern  Pacific  common 
that  they  had  sold  to  these  firms.  Mr.  Bacon,  fearing 
that  if  he  "let  up"  on  the  "shorts"  he  might  lose  a 
considerable  part  of  the  stock  that  was  coming  to 
Morgan  &  Co.,  seemed,  at  first,  a  little  reluctant  to 
acquiesce  in  this  proposition;  but  he  finally  saw  the 
wisdom  of  it  and  agreed  to  it.  As  a  large  part  of  the 
short  stock  had  been  sold  to  one  firm  or  the  other, 
and  as  $150  a  share  was  a  very  reasonable  price  for 
it  at  that  time,  the  proposal  was  gladly  accepted  by 
the  "shorts,"  and  did  much  to  relieve  the  tension 
and  quiet  the  excitement. 

Morgan  &  Co.,  as  well  as  Harriman  and  Schiff, 
**had  done  what  they  could,"  and  each  side  believed 
itself  sure  of  victory.  But  the  fact  that  the  market 
was  bare  of  Northern  Pacific,  while  buyers  were  still 
eager  to  get  it,  sent  prices  rocketing.  Many  share- 
holders in  the  West  and  South  sold  their  shares,  but 
could  not  deliver  immediately.  Speculators  who 
sold  short  saw  the  price  jump,  point  after  point,  but 
could  not  furnish  the  stock  to  stop  their  losses.  But 
it  was  not  what  was  ordinarily  called  a  "corner." 
Nobody  was  trying  to  force  prices  up  that  he  might 


NORTHERN  PACIFIC  PANIC  315 

sell  at  a  profit.  "How  could  we  sell  at  any  price?" 
said  Mr.  Hill;  "we  were  investors,  not  speculators,  I 
never  bought  or  sold  a  share  of  stock  for  gambling 
purposes  in  my  life,  and  I  don't  want  to  earn  money 
wrung  from  people  by  a  'corner.*"  ^ 

Mr.  Hill,  however,  was  unjust  to  Mr.  Harriman  — 
perhaps  inadvertently  so  —  in  saying  that  Union 
Pacific  interests  "bid  Northern  Pacific  up  until  there 
was  the  largest  stock  'corner'  ever  known."  ^  This 
is  an  error.  Harriman  and  Kuhn,  Loeb  &  Co.  did 
not  "bid  Northern  Pacific  up"  until  they  created  a 
''corner."  They  made  no  purchases  after  Friday, 
May  3d,  and  the  "corner"  was  not  established  until 
four  days  later.  If  anybody  created  it,  Morgan  & 
Co.  did  so  by  buying  150,000  shares  after  Harri- 
man and  Schiff  had  gone  out  of  the  market.  It  was 
Robert  Bacon,  not  Kuhn,  Loeb  &  Co.,  who  bid  the 
stock  up  from  112  to  149I  in  the  attempt  to  get 
control  of  it. 

As  a  matter  of  fact  the  ''corner,"  as  the  "Com- 
mercial &  Financial  Chronicle"  said  at  the  time,  was 
largely  if  not  wholly  accidental,  and  was  the  result  of 
wild  and  irrational  speculation  on  the  part  of  the 
general  public.^   Mr.  Hill  compared  it  to  an  Indian 

1  Pyle's  Life  of  James  J.  Hill,  vol.  il,  p.  151. 

2  Public  statement  made  by  Mr>  Hill  at  the  time  of  the  formation  of 
the  Northern  Securities  Company. 

•  Commercial  &  Financial  Chronicle,  May  18,  1901. 


3i6  E.  H.  HARRIMAN 

*'ghost  dance/*  In  an  interview  published  in  the 
New  York  newspapers  of  Thursday  afternoon,  May 
9th,  he  was  quoted  as  saying: 

All  I  can  do  is  to  liken  it  to  a  ghost  dance.  The  Indi- 
ans begin  their  dance  and  don't  know  why  they  are  do- 
ing it.  They  whirl  about  until  they  are  almost  crazy.  It 
is  so  when  these  Wall  Street  people  get  the  speculative 
fever.  Perhaps  they  imagine  they  have  a  motive  in  that 
they  see  two  sets  of  powerful  interests  which  may  be 
said  to  be  clashing.  Then  these  outsiders,  without 
rhyme  or  reason,  rush  in  on  one  side  or  the  other.  They 
could  not  tell  you  why  they  make  their  choice,  but  in 
they  go,  and  the  result  is  such  as  has  been  seen  here  for 
the  past  few  days. 

Mr.  Harriman's  description  of  the  situation,  and 
particularly  his  own  relation  to  it,  was  given  in  the 
following  words: 

Our  holdings  [of  Northern  Pacific  stock]  were  all  ac- 
quired prior  to  the  supposed  contest  between  Morgan  & 
Co.  and  ourselves.  During  the  days  of  the  panic  we  did 
not  buy  any  Northern  Pacific  stock,  nor  give  orders  for 
any.  Many  of  our  shares  had  been  bought  in  Germany, 
Holland,  or  England,  for  delivery  in  New  York,  and  the 
certificates  were  on  their  way  to  their  destination. 
Meanwhile  the  agents  of  the  foreign  sellers  were  making 
their  deliveries  by  using  stock  borrowed  from  other 
people.  Then,  when  the  supposed  contest  took  place 
and  other  parties  bought  Northern  Pacific  at  very  high 
prices  and  demanded  immediate  delivery,  the  agents  of 
these  European  sellers  had  great  difficulty  in  getting 
stock  to  fill  their  contracts.  But,  in  every  case,  we  gave 


NORTHERN  PACIFIC  PANIC  317 

them  all  the  time  they  needed.  We  were  not  in  the  sup- 
posed contest  and  had  no  hand  in  it.^ 

On  the  day  after  the  panic,  brokers  in  Wall  Street 
were  in  a  state  of  complete  nervous  prostration  from 
the  strain  of  anxiety  and  apprehension;  but  there 
were  few  failures,  money  soon  became  compara- 
tively easy  again,  and  the  stock  market  returned  to 
something  like  its  normal  state.  Millions  had  been 
made  and  lost,  and  scores  of  firms  had  been  threat- 
ened with  ruin;  but  the  panic  was  local,  rather  than 
general,  and  the  country  at  large  was  little  affected. 

So  far  as  possession  of  the  Northern  Pacific  was 
concerned,  the  situation  remained  substantially 
unchanged.  Hill  and  Morgan  held  a  majority  of  the 
common  shares,  while  Harriman  and  the  Union  Pa- 
cific owned  a  majority  of  the  preferred,  as  well  as  of 
both  classes  of  stock  taken  together.  Owing,  how- 
ever, to  certain  peculiar  conditions,  neither  of  the 
contending  parties  could  regard  its  hold  of  the  prop- 
erty as  absolutely  secure.  The  plan  of  Morgan  and 
Hill  was  to  retire  the  preferred  shares  on  the  ist  of 
the  next  January  and  thus  leave  Harriman  and  the 
Union  Pacific  with  only  a  minority  holding  in  the 
common.^  There  was  a  question,  however,  whether 

1  As  related  by  Mr.  Harriman  to  G.  W.  Batson. 

*  In  the  reorganization  of  the  Northern  Pacific  Company  in  1896, 
the  right  was  reserved  '*to  retire  tliis  [the  preferred]  stock,  in  whole  or 
in  part,  at  par,  from  time  to  time,  upon  any  ist  day  of  January  during 
the  next  twenty  years." 


318  E.  H.  HARRIMAN 

the  board  of  directors  then  existing  (in  May,  1901) 
would  have  power  to  do  this.  If  not,  Harriman 
would  be  able  to  prevent  it,  because,  at  the  annual 
meeting  of  stockholders  on  the  first  Tuesday  in  Oc- 
tober, he,  holding  a  majority  of  the  whole  capital 
stock,  could  elect  directors  enough  to  give  him  con- 
trol of  the  board,  and  then  this  newly  constituted 
board  would  refuse  to  retire  the  preferred  shares. 
In  order  to  avoid  this  contingency,  Morgan  and 
Hill  proposed  to  have  the  annual  meeting  of  stock- 
holders postponed  until  after  January  i,  1902,  so  as 
to  prevent  Harriman  from  electing  any  new  directors 
friendly  to  the  Union  Pacific,  until  after  the  preferred 
stock  had  been  retired.  There  was  grave  doubt,  how- 
ever, whether  the  board  of  directors  then  existing 
(in  May,  1901)  would  have  legal  authority  either  to 
retire  the  preferred  stock,  or  to  postpone  the  annual 
meeting  so  as  to  prolong  the  term  of  its  own  exist- 
ence. Mr.  Harriman  consulted  five  eminent  legal 
authorities  in  different  parts  of  the  United  States  and 
they  all  unanimously  agreed  that  the  existing  board 
could  not  lawfully  retire  the  preferred  stock,  nor, 
without  the  consent  of  a  majority  of  the  shareholders, 
postpone  the  annual  meeting  to  another  year.  If  this 
opinion  proved  to  be  sound,  Harriman,  having  a  ma- 
jority of  the  whole  capital  stock,  could  elect  in  Octo- 
ber a  board  of  directors  friendly  to  the  Union  Pacific, 


NORTHERN  PACIFIC  PANIC  319 

and  thus  prevent  Morgan  and  Hill  from  getting  con- 
trol through  the  retirement  of  the  preferred  stock. 

In  order,  however,  to  avoid  further  controversy, 
Harriman  and  Schiff  finally  decided  that  if  they 
could  bring  about  a  compromise  which  would  safe- 
guard the  interests  of  the  Union  Pacific  by  giving 
that  company  adequate  representation  on  the  North- 
ern Pacific  and  Burlington  boards,  it  v/ould  be  better 
to  do  this  than  to  keep  the  affairs  of  three  companies 
unsettled  pending  the  outcome  of  long  litigation. 
As  Mr.  Hill's  biographer  has  said: 

Nothing  was  to  be  gained  for  either  side  by  fighting. 
Both  might  have  continued  to  tear  up  Wall  Street  and 
injure  large  property  interests  including  their  own. 
They  could  have  engaged  in  endless  litigation,  which 
would  have  cost  a  lot  of  money  without  materially  alter- 
ing anything.  They  might  have  maintained  their  di- 
vided ownership  and  kept  up  a  tug-of-war  until  the 
rope  broke.  The  end  of  that  would  be  two  pieces  of  rope 
and  two  parties  covered  with  bruises  from  severe  falls. 
After  all  their  animosities,  and  with  all  that  they  had 
done  or  left  undone,  it  has  to  be  remembered  that  on 
both  sides  there  were  big  men.  They  were  big  not  only 
by  the  measurement  of  achievement,  but  also  because 
they  were  not  actuated  by  a  blind,  vindictive  desire  just 
to  crush  and  kill.  They  had  already  accepted,  not 
merely  as  a  theory,  but  as  a  conviction,  the  necessity  of 
community  of  interest  to  a  certain  extent.  Recent 
events  had  broadened  and  instructed  their  view.  Things 
being  as  they  were,  they  were  ready  for  agreement.^ 

*  Fyle's  Life  of  James  J.  Hill,  vol.  ii,  pp.  153-54.    Mr.  Harriman 


320  E.  H.  HARRIMAN 

The  fact  that  there  never  had  been  any  personal 
animosity  between  Hill  and  Harriman  made  it  easier 
to  bring  about  a  compromise  than  it  would  have  been 
if  they  had  hated  each  other.  Working,  as  they  did, 
in  practically  the  same  general  field,  it  was  almost 
inevitable  that  their  business  interests  should  clash; 
but  throughout  their  controversies  their  personal 
relations  were  those  of  mutual  respect  and  esteem. 
In  a  talk  with  the  well-known  journalist,  Frederick 
Palmer,  soon  after  the  Northern  Pacific  contest,  Mr. 
Harriman  expressed  the  belief  that  Hill  was  not 
personally  hostile  to  him.  "Anyhow,"  he  said,  "he 
calls  me  'Ed.'"  Eight  years  later,  when  Mr.  Harri- 
man died,  Mr.  Hill,  in  paying  a  tribute  of  respect  to 
his  character,  said : 

His  properties  are  in  fine  shape,  but  his  place  at  the 
head  of  them  will  be  hard  to  fill.  I  have  done  a  good  deal 
of  business  with  him,  and  some  of  it  was  pretty  strenu- 
ous at  times,  but  we  were  good  personal  friends  through- 
out. I  had  a  very  high  regard  for  Mr.  Harriman  person- 
ally.» 

never  doubted  that  he  had  lawful  control  of  the  Northern  Pacific 
Company  and  that  if  he  had  fought  the  case  through  the  courts  he 
would  practically  have  obtained  possession  of  the  company.  As  Mr. 
Otto  H.  Kahn  has  said:  "He  held,  beyond  any  question  of  doubt,  the 
winning  hand;  but  instead  of  boldly  playing  it,  he  contented  himself 
with  a  drawn  battle,  and  with  terms  of  peace  which  gave  to  the  other 
side  the  appearance  of  victory.  The  course  that  he  pursued,  however, 
showed  his  wisdom,  foresight,  and  self-restraint,  and  his  practice  of 
never  using  any  greater  force  than  was  necessary  for  the  substantial 
accompslihment  of  his  object."  {Edward  Henry  Harriman,  by  Otto 
H.  Kahn,  in  New  York,  191 1,  pp.  32-33.) 
*  iVew  York  Sun,  September  10,  1909. 


NORTHERN  PACIFIC  PANIC  321 

Throughout  the  early  part  of  May,  1901,  confer- 
ences were  held,  either  at  Mr.  Harriman^s  office  or 
the  office  of  Morgan  &  Co.,  and  late  in  that  month 
Kuhn,  Loeb  &  Co.  authorized  publication  of  the 
following  statement. 

It  is  officially  announced  that  an  understanding  has 
been  reached  between  Northern  Pacific  and  Union  Pa- 
cific interests  under  which  the  composition  of  the  North- 
ern Pacific  board  will  be  left  in  the  hands  of  J.  P.  Mor- 
gan personally.  Certain  names  have  already  been  sug- 
gested, not  now  to  be  made  public,  which  will  especially 
be  recognized  as  representatives  of  the  common  inter- 
ests. It  is  asserted  that  complete  and  permanent  har- 
mony will  result  under  the  plan  adopted  between  all  in- 
terests involved. 

On  the  31st  of  May,  at  a  final  conference  held  in 
the  Metropolitan  Club,  the  ''understanding*'  above 
referred  to  was  embodied  in  a  written  memorandum 
which  was  signed  by  Kuhn,  Loeb  &  Co.,  Morgan, 
Harriman,  and  Hill.  By  the  terms  of  this  memo- 
randum Mr.  Morgan  was  empowered  to  select  di- 
rectors to  fill  vacancies  on  the  NorthernPacific  board 
with  William  K.  Vanderbilt  as  referee  in  case  of  fur- 
ther disagreement.  Mr.  Harriman  and  a  number  of 
gentlemen  friendly,  or  at  least  not  hostile,  to  him 
were  to  become  directors  of  both  the  Northern  Pa- 
cific and  the  Burlington,  and  the  Union  Pacific  was 
to  have  certain  trackage  rights  over  the  Northern 


322  E.  H.  HARRIMAN 

Pacific  between  Portland  and  Seattle.  So  far  as 
competition  between  the  Union  Pacific  and  the  Hill 
roads  was  concerned,  the  Burlington  was  to  remain 
neutral,  and  it  was  not  to  embark  in  any  new  enter- 
prise in  the  West  —  such  as  building  through  to  the 
Pacific  —  without  the  consent  and  approval  of  Har- 
riman  and  the  Union  Pacific  Company. 

On  the  17th  of  July,  Mr.  Morgan,  in  the  following 
letter  to  Hill,  Harriman,  and  Schiff,  gave  the  names 
of  the  gentlemen  whom  he  had  selected  to  fill  va- 
cancies in  the  Northern  Pacific  board: 

iVew  York,  July  17,  1901 

Gentlemen: 

In  accordance  with  a  memorandum  signed  by  you 
under  date  of  May  31,  1901,  under  which  the  composi- 
tion of  the  Board  of  Directors  of  the  Northern  Pacific 
Railway  Company  was  to  be  left  in  my  hands,  I  beg  to 
advise  you  of  my  conclusion  as  follows: 

I  nominate  the  following  gentlemen  as  the  new  mem- 
bers of  the  Board  to  fill  the  vacancies  to  be  created: 

Mr.  James  J.  Hill,  President  of  the  Great  Northern 
Railway  Company; 

Mr.  E.  H.  Harriman,  Chairman  of  the  Executive 
Committee  of  the  Union  Pacific  Railway  Company; 

Mr.  William  Rockefeller,  Director  of  the  Chicago, 
Milwaukee  &  St.  Paul  Railway  Company; 

Mr.  H.  McK.  Twombley,  Director  of  the  Chicago  & 
Northwestern  Railway  Company; 

Mr.  Samuel  Rea,  Vice-President  of  the  Pennsylvania 
Railway  Company; 
and  I  would  suggest  that  the  attention  of  the  Board  be 


NORTHERN  PACIFIC  PANIC  323 

called  to  the  advisability  of  arranging  for  these  gentle- 
men to  assume  their  duties  as  Directors  of  the  Company 
as  soon  as  possible,  without  awaiting  the  annual  election. 
It  is  my  opinion  that  a  Board  thus  constituted  will 
contain  within  itself  the  elements  best  adapted  for  the 
formulation  of  the  plan  referred  to  in  said  memorandum, 
in  connection  with  Mr.  William  K.  Vanderbilt  named 
therein  as  Referee.  Every  important  interest  will  have 
its  representative,  who  will  be  brought  into  close  touch 
with  the  situation  as  a  whole,  and  there  should  be  no 
difficulty  in  reaching  a  conclusion  that  will  be  fair  and 
just  to  all  concerned  and  tend  to  the  establishment  of 
permanent  harmony  among  the  different  lines.  To  this 
end  I  shall  be  very  glad  to  cooperate  in  such  manner  as 
will  seem  desirable. 

I  am,  Gentlemen 

Very  truly  yours 

J.  PiERPONT  Morgan 

Of  the  gentlemen  thus  chosen,  Rockefeller  and 
Twombley  were  friendly  to  the  Union  Pacific  Com- 
pany, while  only  Mr.  Hill  was  certainly  hostile  to  it. 

In  this  final  settlement  of  the  contest,  Mr.  Harri- 
man  did  not  gain  all  that  he  had  hoped  for,  because 
the  two  roads  that  he  wanted  remained  in  the  pos- 
session of  his  adversaries.  Inasmuch,  however,  as  he 
himself  secured  a  seat  in  the  directing  board  of  each, 
he  guarded  himself  against  secret,  aggressive  action 
on  the  part  of  either,  and  thus  made  the  interests  of 
the  Union  Pacific  reasonably  safe.^ 

1  Mr.  Harriman  became  not  only  a  director  on  the  board  of  the 
Northern  Pacific,  but  also  a  member  of  its  executive  committee. 


32'4  E.  H.  HARRIMAN 

.  The  nearly  successful  attempt  of  Mr.  Harriman  to 
secure  control  of  the  Northern  Pacific  startled  and 
alarmed  not  only  J.  Pierpont  Morgan,  who  was  the 
person  most  interested  in  that  corporation,  but  also 
Mr.  Hill  and  the  little  group  of  men  who  had  coop- 
erated with  him  in  the  building  of  the  Great  North- 
ern. They  regarded  themselves  as  responsible  for 
the  future  of  the  systems  that  they  had  created  or 
reorganized;  they  had  a  natural  feeling  of  pride  in 
them,  and  they  wished  to  have  carried  out,  even  af- 
ter their  own  retirement  or  death,  the  plans  they  had 
formed  for  their  future  management  and  operation. 
They  determined,  therefore,  to  bind  them  together 
in  such  a  safe  and  permanent  way  as  to  ensure  uni- 
fied control  and,  at  the  same  time,  prevent  them 
from  falling  into  the  hands  of  rival  corporations  or 
alien  interests.  Mr.  Hill  was  the  first  to  think  of  and 
suggest  the  idea  of  forming  a  holding  company,  to  be 
known  as  the  Northern  Securities  Company,  which 
should  acquire  the  stock  of  both  the  Great  Northern 
and  Northern  Pacific  and  issue  in  lieu  thereof  stock 
certificates  of  its  own.  Such  a  company  would  have, 
including  the  stock  of  the  recently  acquired  Burling- 
ton, a  capitalization  of  three  or  four  hundred  million 
dollars,  and  would  be  so  large  and  strong  that,  in  all 
probability,  no  alien  or  hostile  corporation  could  ever 
get  control  of  it  by  purchasing  a  majority  of  its  shares. 


NORTHERN  PACIFIC  PANIC  325 

In  a  letter  to  a  friend  written  in  May,  1901,  soon 
after  the  Northern  Pacific  contest,  Mr.  Hill  outlined 
his  plan  as  follows: 

The  cost  of  administering  the  affairs  of  a  holding 
company  would  be  practically  iiil,  as  it  would  only 
draw  dividends  on  the  shares  held  by  it  and  divide  the 
money  so  received  by  check  to  its  own  shareholders. 
You  will  see  how  strong  the  holding  company  would  be. 
It  would  control  the  Great  Northern  and  Northern  Pa- 
cific, and  those  two  roads  would  control  by  ownership 
the  Chicago,  Burlington  &  Quincy.  The  holding  com- 
pany could  also,  if  at  any  time  it  seemed  best,  hold  the 
shares  of  coal  or  other  companies  which,  while  of  value 
in  themselves  and  of  value  to  the  railway  company  for 
the  traffic  they  would  afford,  the  charters  of  the  railway 
companies  are  not  broad  enough  to  enable  them  to  hold 
with  safety.  I  think  the  completion  of  the  plan  of  which 
the  above  is  a  fair  outline  would  greatly  enhance  and  in- 
sure the  value  of  every  share  we  hold  in  the  railway 
companies.  For  myself,  I  feel  that  the  future  would  be 
secure,  and  we  would  have  a  certainty  in  the  situation, 
and  the  control  of  those  properties  safe.  Unless  we  do 
something  of  this  kind,  we  will  always  be  subject  to  at- 
tacks like  the  recent  one  to  secure  control  of  one  or  other 
of  our  properties.^ 

In  a  somewhat  later  statement,  Mr.  Hill  said: 

We  were  particularly  anxious  to  put  a  majority  of 
that  stock  [the  Northern  Pacific]  where  it  could  not  be 
raided  again  as  it  had  been.  We  wanted  to  put  it  in  a 
corporation  that  was  not  a  railroad  company —  a  com- 
pany that  would  hold  it  as  an  investment  —  and  the 

*  Pyle's  Life  of  James  J.  Hill,  vol.  n,  p.  166. 


326'  E.  H.  HARRIMAN 

larger  the  company  the  more  difficult  it  would  be  to  se- 
cure a  majority  of  it.  .  .  .  \^'e  were  advised  that  it  would 
be  safer  with  the  shares  held  by  an  investment  com- 
pany, the  stock  of  which  could  only  be  held  by  individu- 
als, or  by  corporations  that  were  not  railroad  companies, 
and  to  that  extent  we  would  be  more  free  from  such 
raids  by  interests  that  were  anxious  to  destroy  or  re- 
strict the  growth  of  the  country  —  such  raids  as  had 
been  made  by  the  Union  Pacific  interests  so-called.^ 

In  saying  that  the  Union  Pacific  interests  were 
anxious  to  "destroy  or  restrict  the  growth  of  the 
country,"  Mr.  Hill  was  not  quite  fair  to  Mr.  Harri- 
man.  The  latter  had  no  intention  of  destroying  or 
restricting.  He  tried  to  secure  control  of  the  North- 
ern Pacific,  primarily,  as  a  means  of  getting  the 
share  in  the  Burlington  which  Mr.  Hill  had  refused 
to  give  him;  but  he  had  no  thought  of  injuring  the 
Northern  Pacific,  or  of  restricting  the  growth  of  the 
country  tributary  to  it.  On  the  contrary;  his  aims 
were,  first,  to  get  a  share  in  the  Burlington,  and, 
second,  to  make  the  Northern  Pacific  stronger  and 
more  useful  than  it  ever  had  been  before.  If  he  had 
succeeded,  he  would  have  done  with  the  Northern 
Pacific  precisely  what  he  was  already  doing  with  the 
Union  Pacific  and  the  Southern  Pacific;  that  is,  he 
would  have  spent  tens  of  millions  of  dollars  in  im- 
proving it  and  making  it  better  able  to  serve  the 
country  through  which  it  ran.  When  he  testified  as 
>  Pyle's  Life  oj  James  J.  Hill,  vol.  ii,  pp.  164-65. 


NORTHERN  PACIFIC  PANIC  327  ^ 

a  witness  before  the  Interstate  Commerce  Commis- 
sion in  1907  he  said: 

If  we  had  not  had  the  power  to  buy  the  Southern  Pa- 
cific with  the  credit  of  the  Union  Pacific,  the  country 
tributary  to  the  Southern  Pacific  would  have  been  ten 
years  behind  what  it  is  now.  If  we  had  acquired  the 
Northern  Pacific,  the  Northern  Pacific  territory  would 
have  been  ten  years  ahead  of  what  it  is  now.^ 

Mr.  Harriman's  genius  was  essentially  and  funda- 
mentally constructive,  and  no  railroad  that  he  ever 
acquired  suffered  injury  from  his  management  or 
control.  Eight  years  after  his  death,  when  the  se- 
curities of  all  railroads  had  been  depressed  by  hostile 
legislation  and  the  restrictions  of  an  incompetent 
Commission,  the  shares  of  the  Southern  Pacific  and 
the  Union  Pacific  were  selling  respectively  at  115 
and  122,  while  the  shares  of  the  Northern  Pacific 
and  the  Great  Northern  were  offered  at  86  and  85. 
Traffic  statistics,  moreover,  show  that  the  country 
serv^ed  by  the  Hill  system  certainly  did  not  develop 
more  rapidly  than  the  country  served  by  the  Harri- 
man  lines.  Mr.  Harriman  planned  and  built  with 
the  future  of  the  country  constantly  in  mind,  and 
the  prices  of  his  stocks,  as  well  as  the  prosperity 
of  his  territory,  show  how  sagacious  and  far-seeing 

*  Hearings  before  the  Interstate  Commerce  Commission  in  the 
matter  of  "Consolidation  and  Combination  of  Carriers,"  February 
25-27.  1907*  P-  163. 


328  E.  H.  HARRIMAN 

his  plans  were  and  how  enduring  his  influence  has 
been. 

The  plan  of  the  Northern  Securities  Company, 
although  suggested  and  advocated  by  Mr.  Hill,  was 
practically  put  in  shape  by  John  S.  Kennedy  (rep- 
resenting the  Dutch  committee  of  bondholders); 
George  F.  Baker  (a  friend  and  associate  of  Mr.  Hill) ; 
Willis  D.  James;  W.  P.  Clough;  Samuel  Thorne  and 
G.  W.  Perkins  (of  the  firm  of  J.  P.  Morgan  &  Co.). 

In  a  signed  statement  published  in  the  St.  Paul 
''Globe'*  in  December,  Mr.  Hill  explained  the  pur- 
poses of  the  company  in  detail  as  follows: 

Several  of  the  gentlemen  who  have  long  been  inter- 
ested in  the  Great  Northern  Railway  and  its  predeces- 
sor, the  St.  Paul,  Minneapolis  &  Manitoba  Company, 
and  who  have  always  been  among  its  largest  sharehold- 
ers, but  not  the  holders  of  a  majority  of  its  stock,  whose 
ages  are  from  seventy  to  eighty-six  years,  have  desired 
to  combine  their  individual  holdings  in  corporate  form, 
and  in  that  way  secure  permanent  protection  for  their 
interests  and  a  continuation  of  the  policy  and  manage- 
ment which  had  done  so  much  for  the  development  of 
the  Northwest  and  the  enhancement  of  their  own  prop- 
erty in  the  Northwest  and  elsewhere.  Out  of  this  desire 
has  grown  the  Northern  Securities  Company. 

It  became  necessary  (in  order  to  prevent  the  North- 
ern Pacific  from  passing  under  the  control  of  the  Union 
Pacific  interests  and  with  it  the  joint  control  of  the 
Burlington)  to  pay  off  the  seventy-five  millions  of 
Northern  Pacific  preferred.  The  enormous  amount  of 
cash  required  for  this  purpose,  from  a  comparatively 


^^A„ 


NORTHERN  PACIFIC  PANIC  329 

small  number  of  men,  made  it  necessary  for  them  to  act 
together  in  a  large  and  permanent  manner  through  the 
medium  of  a  corporation;  and  the  Northern  Securities 
Company  afforded  them  the  means  of  accomplishing 
this  object  without  the  necessity  of  creating  a  separate 
company  to  finance  the  transaction  for  the  Northern 
Pacific.  .  .  .  The  Northern  Securities  Company  is  organ- 
ized to  deal  in  high-class  securities ;  to  hold  the  same  for 
the  benefit  of  its  shareholders,  and  to  advance  the  in- 
terests of  the  corporations  whose  securities  it  owns.  Its 
powers  do  not  include  the  operation  of  railways,  bank- 
ing, or  mining,  nor  the  buying  and  selling  of  securities  or 
properties  of  others  on  commission ;  it  is  purely  an  invest- 
ment company;  and  the  object  of  its  creation  was  sim- 
ply to  enable  those  who  hold  its  stock  to  continue  their 
respective  interests  in  association  together;  to  prevent 
such  interests  from  being  scattered  by  death  or  other- 
wise, and  to  provide  against  such  attacks  as  had  been 
made  upon  the  Northern  Pacific  by  a  rival  and  compet- 
ing interest.^ 

Although  the  Northern  Securities  Company  was 
suggested  by  Mr.  Hill  in  the  spring  of  1901,  and  a 
plan  for  its  organization  drawn  up  by  him  and  his 
associates  a  few  months  later,  it  did  not  actually 
come  into  existence  until  late  in  the  fall.  On  the  12th 
of  November,  1901,  it  was  duly  incorporated  under 
the  laws  of  the  State  of  New  Jersey  with  a  capital  of 
$400,000,000. 

Its  first  board  of  directors  consisted  of  fifteen 
members,  six  of  whom  represented  the  Northern 
*  St.  Paul  Globe,  December  22,  1901. 


330  E.  H.  HARRIMAN 

Pacific,  four  the  Great  Northern,  three  (including 
Mr.  Harriman)  the  Union  Pacific,  and  two  not  rep- 
resentative of  any  specific  interest.  Mr.  Hill  was 
unanimously  chosen  president  of  the  new  corpora- 
tion, and  all  holders  of  Great  Northern  and  Northern 
Pacific  stock  (including  the  Union  Pacific)  were  in- 
vited to  exchange  their  shares  for  the  stock  of  the 
Securities  Company  on  the  basis  of  $i8o  for  every 
$100  surrendered  (in  the  case  of  the  Great  Northern) 
and  $1 15  for  every  $100  (in  the  case  of  the  Northern 
Pacific).  About  76  per  cent  of  the  Great  Northern 
stockholders  and  96  per  cent  of  the  Northern  Pacific 
stockholders  turned  in  their  shares  for  exchange. 
Mr.  Harriman  surrendered  all  the  Northern  Pacific 
stock  that  he  had  acquired  in  his  attempt  to  get 
control  of  that  road,  and  received  in  lieu  thereof 
about  $82,500,000  in  the  shares  of  the  new  corpora- 
tion. 

If  there  had  been  no  interference  from  outside, 
the  three  companies  would  probably  have  worked 
together  more  or  less  harmoniously  under  the  terms 
of  the  Metropolitan  Club  agreement  and  the  charter 
of  the  Northern  Securities  Company.  Unfortunately 
however,  the  latter  was  almost  immediately  at- 
tacked in  the  courts,  on  the  ground  that  it  was  an 
attempt  to  restrain  trade  in  violation  of  the  Sherman 
Anti-Trust  Law.  Owing  partly  to  popular  ignorance 


NORTHERN  PACIFIC  PANIC  331 

or  prejudice  and  partly  to  political  demagogism,  the 
public  mind  at  that  time,  particularly  in  the  North- 
west, was  obsessed  with  the  idea  that  combinations 
and  agreements  among  railroad  companies  were 
made  for  the  sole  purpose  of  advancing  or  maintain- 
ing rates,  and  that  the  only  remedy  for  this  alleged 
evil  was  to  enforce  unrestricted  competition  in  every 
case  where  one  railroad  ran  parallel  to  another.  The 
formation  of  the  Northern  Securities  Company  was 
generally  regarded  as  a  covert  scheme  to  extort  more 
money  from  the  people  by  restricting  or  preventing 
competition  among  the  Hill  and  Harriman  lines.  ^  As 
we  now  know,  the  creation  of  the  holding  company 
was  not  related  in  any  way  either  to  competition 
or  to  rates.  It  had  its  origin  in  a  perfectly  legitimate 
attempt,  on  the  part  of  a  number  of  large  sharehold- 
ers, to  keep  their  associated  interests  together  in 
the  event  of  their  retirement  or  death,  and  to  pre- 
vent seizure  or  control  of  their  properties  by  outside 
corporations,  or  groups,  through  the  secret  purchase 
of  stock.   The  State  authorities  of  Minnesota,  how- 

*  "As  a  matter  of  fact,  the  Great  Northern  and  Northern  Pacific  did 
not  compete,  to  an  appreciable  extent,  with  each  other,  and  still  less 
with  the  Union  Pacific.  Only  three  per  cent  of  the  total  interstate 
traffic  was  subject  to  control  by  them  individually  in  the  making  of 
rates.  There  was  competition,  of  course,  for  the  Oriental  trade,  but  it 
did  not  affect  at  all  the  people  in  the  Northwest,  where  only  an  inap- 
preciable portion  of  the  total  interstate  traffic  was  strictly  competi- 
tive." {History  of  the  Northern  Securities  Case,  by  B.  H.  IMeyer,  Uni- 
versity of  Wisconsin  Bulletin,  p.  247.) 


332  E.  H.  HARRIMAN 

ever,  as  well  as  the  general  public,  disregarded  or 
disbelieved  this  explanation  of  the  reasons  for  com  • 
bination,  and  on  the  7th  of  January,  1902,  the  State 
of  Minnesota  began  suit  against  the  Securities  Com- 
pany in  the  United  States  Circuit  Court  at  St.  Paul, 
on  the  alleged  ground  that  it  was  an  illegal  combina- 
tion in  restraint  of  trade.  A  few  weeks  later,  the 
Attorney-General  of  the  United  States  advised  Pres- 
ident Roosevelt  that,  in  his  opinion,  the  so-called 
''merger"  of  the  Northern  Pacific  and  the  Great 
Northern  violated  the  provisions  of  the  Sherman 
Act  of  1890;  and  on  the  loth  of  March,  1902,  the 
Federal  Government  brought  suit  against  the  North- 
ern Securities  Company,  the  Northern  Pacific,  and 
the  Great  Northern  in  the  Circuit  Court  of  Appeals, 
a  tribunal  consisting  of  four  Circuit  Court  judges 
sitting  as  a  trial  court  under  a  special  Act  of  Con- 
gress. 

The  decisions  in  the  two  lower  courts  were  dia- 
metrically opposed  to  each  other.  In  the  State  case 
it  was  held  that  the  formation  of  the  Northern  Se- 
curities Company  did  not  involve  any  act  or  con- 
tract in  restraint  of  trade,  while  in  the  Federal  case 
the  judges  decided  that  the  "Securities  Company 
accomplishes  the  object  which  Congress  has  declared 
illegal  perhaps  more  effectually  than  other  forms  of 
combination  generally  known  in  1890  when  the  Anti- 


NORTHERN  PACIFIC  PANIC  333 

Trust  Law  was  passed."  The  facts  that  the  com- 
bination might  have  been  inspired  by  "wholly  laud- 
able and  unselfish  motives,"  and  that  it  was,  perhaps, 
''the  initial  and  necessary  step  in  the  accomplish- 
ment of  great  designs,"  were  said  to  make  no  differ- 
ence. If  the  combination  had  power  to  "suppress 
competition  between  two  or  more  parallel  and  com- 
peting lines  of  railroad  engaged  in  interstate  com- 
merce," no  matter  whether  it  had  actually  exercised 
that  power  or  not,  it  was  illegal.  The  Northern 
Securities  Company  was,  therefore,  enjoined  from 
voting  stock,  acquiring  additional  stock,  paying 
dividends,  or  exercising  corporate  control.  The  prin- 
cipal difference  in  the  judgments  of  the  two  lower 
courts  was  this :  one  held  that  the  mere  purchase  of  a 
majority  of  the  shares  of  the  Great  Northern  and 
Northern  Pacific  by  the  Securities  Company  was 
illegal,  because  it  gave  the  holding  company  power 
to  restrict  competition  and  thus  restrain  trade;  the 
other  declared  that  the  mere  possession  of  power 
does  not  warrant  the  assumption  that  the  power  will 
be  criminally  used.^ 

Both  cases  were  carried  by  appeal  to  the  United 
States  Supreme  Court  in  Washington,  where  they 
were  argued  by  some  of  the  ablest  lawyers  in  the 

^  The  records,  briefs,  and   arguments  in  these  cases  made  about 
eight  thousand  pages,  or  sixteen  large  octavo  volumes. 


334  E.  H.  HARRIMAN 

country.  On  the  14th  of  March,  1904,  after'  about 
two  years  of  Htigation,  the  State  case  was  dismissed 
for  lack  of  jurisdiction,  while  the  Federal  case  was 
decided  against  the  railroad  companies  by  a  divided 
court.  Five  justices  regarded  the  combination  as  a 
violation  of  the  Sherman  Anti-Trust  Law,  while  four, 
including  the  Chief  Justice,  could  not  see  in  it  any 
contract,  or  conspiracy  —  much  less  any  act  —  that 
restrained  trade,  or  was  intended  to  restrain  trade. 
Justice  Harlan,  who  read  the  opinion  of  the  majority, 
said  that  Congress,  "by  the  Anti-Trust  Act,  has 
prescribed  the  rule  of  free  competition  among  those 
engaged  in  interstate  commerce,"  and  any  combina- 
tion which,  by  its  necessary  operation,  restrains,  or 
tends  to  restrain,  such  free  competition  is  clearly 
illegal.  ''The  Government  charges,"  Justice  Harlan 
said,  "that  if  the  combination  is  not  held  to  be  in 
violation  of  the  Act  of  Congress,  then  all  efforts  of 
the  National  Government  to  preserve  to  the  people 
the  benefits  of  free  competition  among  carriers  en- 
gaged in  interstate  commerce  will  be  wholly  unavail- 
ing; and  all  transcontinental  lines,  indeed  the  entire 
railway  systems  of  the  country,  may  be  absorbed, 
merged,  and  consolidated,  thus  placing  the  public  at 
the  absolute  mercy  of  the  holding  corporation."  The 
majority  of  the  Court  coincided  in  this  view  and  af- 
firmed the  judgment  of  the  Circuit  Court  of  Appeals, 


NORTHERN  PACIFIC  PANIC  335 

The  decision  of  the  Supreme  Court,  it  will  be  ob- 
served, is  based  almost  wholly  on  the  assertion  that 
''Congress,  by  the  Anti-Trust  Law,  has  prescribed 
the  rule  of  free  competition  among  those  engaged  in 
interstate  commerce."  It  is  a  noteworthy  fact,  how- 
ever, that  Congress,  in  the  Sherman  Act,  did  not  use 
the  words  ''free  competition,"  or  "restraint  of  com- 
petition," or  refer  to  "competition"  in  any  way 
whatever.  The  thing  that  it  forbade  was  ''restraint 
of  trade  or  commerce,'"  which  may  be,  and  generally 
is,  a  very  different  thing  from  "restraint  of  competi- 
tion." The  word  "competition"  is  not  to  be  found 
in  any  section  of  the  Sherman  Anti-Trust  Act;  it  was 
read  into  that  Act  by  the  courts,  on  the  assumption 
that  "restraint  of  trade"  and  "restraint  of  competi- 
tion" are  synonymous  expressions. 

Justice  Holmes,  in  a  dissenting  opinion,  called  at- 
tention to  this  wholly  unwarranted  assumption,  and 
said  that  the  words  "restraint  of  competition"  and 
"restraint  of  trade"  do  not  have  the  same  meaning. 
The  latter,  which  has  "a  definite  and  well-estab- 
lished signification  in  the  common  law,  means,  and 
has  always  been  understood  to  mean,  a  combination 
made  by  men  engaged  in  a  certain  business  for  the 
purpose  of  keeping  other  men  out  of  that  business. 
.  .  .  The  objection  to  trusts  was  not  the  union  of 
former  competitors,  but  the  sinister  power  exercised, 


336  E.  H.  HARRIMAN 

or  supposed  to  be  exercised,  by  the  combination,  in 
keeping  rivals  out  of  the  business.  ...  It  was  the 
ferocious  extreme  of  competition  with  others,  not  the 
cessation  of  competition  among  the  partners,  which 
was  the  evil  feared."  "Much  trouble  is  caused,'* 
Justice  Holmes  added,  "by  substituting  other 
phrases,  assumed  to  be  equivalent,  which  are  then 
argued  from  as  if  they  were  in  the  Act.  The  court 
below  argued  as  if  maintaining  competition  were  the 
express  purpose  of  the  Act.  The  Act  says  nothing 
about  competition.''^ 

The  minority  of  the  Court,  however,  did  not  base 
its  dissent  wholly,  or  even  mainly,  on  this  unwar- 
ranted substitution  of  the  words  "restraint  of  com- 
petition" for  the  words  "  restraint  of  trade."  It  took 
the  broader  ground  that  the  question  in  the  case  was 
"not  the  power  of  Congress  to  regulate  commerce, 
but  whether  that  power  extends  to  the  regulation  of 
ownership  of  stock  in  railroads,  which  is  not  commerce 
at  all."  In  the  opinion  of  the  minority,  "The  ac- 
quisition and  ownership  of  stock  in  competing  rail- 
roads, organized  under  State  law  by  several  persons, 
or  by  corporations,  is  not  interstate  commerce  and 
therefore  not  subject  to  the  control  of  Congress."  ^ 

In  commenting,  some  years  later,  on  the  origin 

*  Senate  Documents,  vol.  6,  58th  Congress,  2d  Session. 

*  Dissenting  opinion  of  Justice  White,  in  which  the  Chief  Justici 
and  Justices  Peckham  and  Holmes  concurred. 


NORTHERN  PACIFIC  PANIC  337 

and  history  of  the  Northern  Securities  Company, 
Dr.  B.  H.  Meyer  (afterward  a  member  of  the  Inter- 
state Commerce  Commission)  rightly  said  that  its 
causes  were  "partly  personal  and  partly  economic." 
The  personal  cause  was  the  desire  of  a  number  of 
aged  stockholders  to  keep  their  holdings  together 
after  their  retirement  or  death,  and  to  prevent  their 
properties  from  being  seized  or  controlled  by  alien  or 
rival  interests.  The  largest  economic  cause  was  a 
desire  to  secure  a  permanent  basis  for  the  inter- 
change of  commodities  between  great  producing 
sections  of  the  United  States  and  of  the  Orient.^ 
Neither  of  these  causes  had  anything  w^hatever  to  do 
with  interstate  commerce,  or  with  the  rates  to  be 
imposed  on  such  commerce.  They  related  to  entirely 
different  matters. 

Harriman  and  Hill  were  both  deeply  interested  in 
the  through  traffic  to  and  from  the  Orient.  Harri- 
man already  had  a  trans-Pacific  steamship  line, 
while  Hill  was  building  on  the  northwestern  coast 
two  of  the  largest  steamers  in  the  world  for  the  Ori- 
ental trade.  Both  wanted  the  Burlington  system, 
because  it  would  give  them  access,  over  a  line  of  their 
own,  to  the  cotton,  provisions,  and  manufactures  of 
the  South  and  Middle  West,  which  they  hoped  to 
exchange  for  tea,  silks,  and  other  products  of  China 

^  A  History  of  the  Northern  Securities  Case,  by  B.  H.  Meyer;  Uni- 
versity of  Wisconsin  Bulletin,  pp.  226-27. 


338  E.  H.  HARRIMAN 

and  Japan.  The  United  States,  at  that  time,  had 
only  about  one-fourteenth  part  of  the  total  Chinese 
trade.  If,  by  providing  better  transportation  facili- 
ties, the  Pacific  roads  could  give  American  producers 
cheaper  and  easier  access  to  this  great  market,  they 
certainly  would  not  be  restraining  trade  —  they 
would  be  promoting  and  extending  it.  But  they 
could  not  safely  make  plans  for  increasing  America's 
exports  to  the  Orient  without  forming  a  combination 
that  would  ensure  certainty  of  supply  and  stability 
of  rates.  It  was  this,  and  not  a  desire  to  suppress 
local  competition,  that  led  Hill  and  Harriman  to 
struggle  for  control  of  the  Burlington,  and  later  (by 
way  of  compromise)  to  join  in  the  organization  of 
the  Northern  Securities  Company. 

In  view  of  the  fact  that,  for  many  years.  Congress 
and  the  people  of  the  United  States  have  made  a  sort 
of  fetish  of  railroad  competition,  it  may  be  well  to 
repeat  here  that  Mr.  Harriman,  with  his  synthetic 
and  constructive  mind,  always  favored  cooperation 
and  combination,  as  more  advantageous  both  to  the 
railroads  and  to  the  public  than  unrestricted  com- 
petition. Indeed,  in  the  last  decade  of  his  business 
career  he  came  to  be  regarded  as  the  foremost  expo- 
nent of  the  policy  of  combination  and  consolidation. 
His  motives  were  then  misrepresented  and  his  meth- 
ods were  described  as  autocratic  and  monopolistic; 


NORTHERN  PACIFIC  PANIC  339 

but  time  has  demonstrated  the  soundness  of  his 
ideas.  The  world  is  coming  at  last  to  see  that,  in  the 
words  of  the  first  chairman  of  the  Interstate  Com- 
merce Commission,  "the  more  completely  the  whole 
railway  system  can  be  created  as  a  unit,  as  if  it  were 
all  one  management,  the  greater  will  be  the  benefit  of 
its  service  to  the  public  and  the  less  the  liability  to 
unfair  exactions."^ 

Dr.  Tvleyer,  in  his  "History  of  the  Northern  Se- 
curities Case,"  is  perfectly  right  in  saying: 

Competition,  as  a  regulative  principle  of  railways, 
and  as  a  force  which  will  maintain  proper  relations  be- 
tween the  railways  themselves,  and  between  the  rail- 
ways and  the  public,  has  failed  in  every  country  of  the 
world  where  it  has  been  given  a  trial.  ...  I  regard  the 
application  to  the  railways  of  the  Sherman  Anti-Trust 
Law  of  1890  as  one  of  the  gravest  errors  in  our  legisla- 
tive history.  ...  If  railways  had  been  permitted  to  co- 
operate with  one  another,  under  the  supervision  of  com- 
petent public  authority,  and  if  the  Trans- Missouri  and 
Joint-Trafific  cases  had  never  been  decided,  the  railway 
situation  in  the  United  States  to-day  would  be  apprecia- 
bly better  than  it  is.  .  .  .  The  undiscriminating  opposi- 
tion to  all  forms  of  open  concerted  action  on  the  part  of 
railways  is,  in  my  mind,  the  greatest  single  blunder  in 
our  public  policy  toward  railways.  .  .  .  We  should  have 
cast  away,  more  than  fifty  years  ago,  the  impossible  doc- 
trine of  protection  of  the  public  by  railway  competition.* 

^  Opinion  of  Judge  Thomas  M.  Cooley  in  the  Board  of  Trade  case. 
'  History  of  the  Northern  Securities  Case,  by  B.  H.  Meyer;  Univer- 
sity of  Wisconsin  Bulletin,  pp.  253,  305. 


CHAPTER  XIII 
CONTESTS  WITH  CLARK  AND  KEENE 

AT  no  other  time  in  Mr.  Harriman's  career  did 
^  he  undertake  more  important  enterprises,  or 
carry  on  a  greater  number  of  multifarious  activities, 
than  in  the  three  years  between  1898  and  1902.  Dur- 
ing this  period  he  began  the  reconstruction  of  the 
Union  Pacific;  acquired  control  of  the  great  Southern 
Pacific  system  and  began  to  rebuild  that;  directed 
the  recapitalization  and  reconstruction  of  the  Chi- 
cago &  Alton;  undertook  the  management  of  the 
Kansas  City  Southern;  organized  and  personally 
conducted  an  important  scientific  expedition  to 
Alaska;  planned  and  put  up  a  five-story  building  for 
the  Boys'  Club  in  New  York;  carried  on  a  titanic 
contest  with  J.  P.  Morgan  and  James  J.  Hill  for  con- 
trol of  the  Northern  Pacific,  and  finally  cooperated 
with  these  railroad  financiers  in  the  organization  of 
the  Northern  Securities  Company,  a  corporation 
which  had  a  capitalization  of  $400,000,000  and  which 
linked  together  three  of  the  most  important  railway 
systems  in  the  West. 

One  might  suppose  that  activities  of  such  scope 
and  magnitude  would  overtax  the  working  capacity 


CONTESTS  WITH  CLARK  AND  KEENE    341 

even  of  a  superman;  but  Mr.  Harriman  was  able  to 
carry  them  all  on  successfully,  and  at  the  same  time 
to  act  as  president  of  the  Southern  Pacific;  ^  pres- 
ident of  the  Oregon  Short  Line;  chairman  of  the 
finance  committee  of  the  Illinois  Central,  and  a  di- 
rector of  the  Baltimore  &  Ohio.  His  connection  with 
the  last-named  road  began  in  1899  (when  F.  D.  Un- 
derwood became  its  general  manager), ^  and  lasted 
till  1 90 1.  During  this  period  he  was  not  only  a  di- 
rector, but  one  of  the  most  influential  members  of 
the  important  committee  on  expenditures. 

After  the  reorganization  of  the  Baltimore  &  Ohio 
Company  in  1899,  the  road  was  found  to  be  urgently 
in  need  of  capital  betterments,  and  Mr.  Harriman 
aided  Vice-President  Underwood  in  raising  and  ex- 
pending about  $32,000,000  for  improvements  and 
new  equipment.  In  an  interview  many  years  later 
Mr.  Underwood  said:  ''From  the  time  when  I  be- 
came associated  with  Mr.  Harriman  on  the  Balti- 
more &  Ohio  I  knew  him  intimately.  I  was  very 
much  attached  to  him  as  well  as  filled  with  respect 
and  admiration  for  his  character.  He  helped  me 
to  get  about  $32,000,000  for  improvements  on  the 

*  Elected  September  26,  1901. 

'  Mr.  Underwood  had  previously  been  general  manager  of  the 
Minneapolis,  St.  Paul  &  Sault  Ste.  Marie  Railway.  He  became  general 
manager  of  the  Baltimore  and  Ohio  in  January,  1899,  and  second  vice- 
president  about  five  months  later.  In  May,  1901,  he  was  elected 
president  of  the  Erie. 


342  E.  H.  HARRfMAN 

B.  &  O.  and  for  that  assistance  I  have  always  been 
grateful."  ^ 

In  addition  to  all  the  work  that  he  accomplished 
between  1898  and  1902  (and  perhaps  by  reason  of 
such  work),  he  acquired  during  this  period  three 
very  powerful  and  influential  supporters,  namely, 
James  Stillman,  William  Rockefeller,  and  H.  H. 
Rogers.  Mr.  Stillman,  the  president  of  the  National 
City  Bank,  had  known  Harriman  slightly  before 
1898,  but  it  was  not  until  that  time  that  he  was 
brought  into  close  business  relations  with  him.  He 
had,  at  first,  a  little  prejudice  against  him,  because, 
as  he  afterward  said : 

A  very  prominent  man  had  told  me  to  "look  out  for 
Ed.  Harriman.  He  is  not  so  smart  as  some  people  think, 
and  he  is  not  a  safe  man  to  do  business  with."  For  that 
reason  I  steered  clear  of  him  until  the  matter  of  the 
Union  Pacific  reorganization  came  up.  In  my  associa- 
tion with  him  after  that  time  he  impressed  me  as  a  re- 
markable man  —  a  man  of  unalloyed  frankness  and 
honesty,  and  in  all  respects  loyal  and  trustworthy.  He 
soon  showed,  moreover,  great  money-making  possibili> 
ties.  2 

^  Speaking  afterward  of  this  partial  reconstruction  of  the  Balti- 
more and  Ohio,  Mr.  Harriman  said:  "  I  put  in  eighteen  months  of  hard 
work  at  it."  He  did  not  mean,  of  course,  that  he  gave  to  it  his  undi- 
vided attention,  but  merely  that  for  eighteen  months  he  made  it  a 
subject  of  study  and  thought.  (See  "Harriman:  The  Colossus  of 
Roads,"  by  Carl  Snyder;  Review  of  Reviews,  January,  1907,  p.  48.) 

2  James  Stillman,  in  an  unpublished  interview  with  G.  W.  BatsoHj 
February  9,  191 1. 


CONTESTS  WITH  CLARK  AND  KEENE    343 

The  National  City  Bank,  at  the  time  when  Mr. 
Harriman  began  the  reconstruction  of  the  Union 
Pacific,  was  the  bank  of  the  Standard  Oil  Company, 
and  James  Stillman,  its  president,  was  very  closely 
associated  with  William  Rockefeller  and  H.  H.  Rog- 
ers. It  was  only  natural,  therefore,  that  when  he 
became  satisfied  that  Harriman  was  *'a  remarkable 
man,  and  a  man  of  unalloyed  frankness  and  hon- 
esty,*' he  should  introduce  him  to  the  Standard  Oil 
managers.  This  he  did  about  1901,  and  Rockefeller 
and  Rogers  were  soon  afterward  added  to  the  group 
of  influential  and  powerful  men  upon  whom  Harri- 
man could  confidently  rely.  This  group,  as  John 
Moody  afterward  said,  **  certainly  surpassed  in  finan- 
cial resources  any  set  of  men  in  the  history  of  the 
financial  world.'*  ^ 

Many  times  in  later  years  its  members  gave  Har- 
riman financial  support  when  he  needed  tens  of  mil- 
lions of  dollars,  in  credit  or  cash,  for  the  realization 
of  his  far-reaching  plans. 

The  first  time  that  the  interests  of  the  Harriman 
lines  were  menaced,  after  the  purchase  of  the  Bur- 
lington by  the  Northern  Pacific,  was  in  1901,  when 
Senator  William  A.  Clark,  of  Montana,  who  had 
made  a  great  deal  of  money  in  the  Butte  copper 

*  "Masters  of  Capital  in  America,"  by  John  Moody  and  George 
Kibbe  Turner;  McClure's  Magazine,  December,  19 10,  p.  347. 


344  E.  H.  HARRIMAN 

mines  and  who  had  ambitions  in  the  railway  field; 
projected  a  road  from  San  Pedro  and  Los  Angeles 
to  Salt  Lake  City.  This  road,  when  completed,  would 
not  only  open  up  a  new  competing  route  to  southern 
California,  but  might,  by  consolidation  or  agreement 
with  the  Gould  lines,  create  a  new  transcontinental 
system  from  the  Middle  States  to  the  Pacific  Coast. 
Such  a  combination,  if  effected,  would  be  more  or 
less  prejudicial  to  the  interests  of  both  the  Union 
Pacific  and  the  Southern  Pacific,  because  it  would 
not  only  compete  with  those  lines  for  transconti- 
nental business  in  general,  but  would  very  likely  take 
away  from  them  a  considerable  part  of  the  profit- 
able fruit  traffic  between  southern  California  and 
the  Eastern  markets.  Mr.  Harriman  determined  to 
avert  these  dangers  by  building  a  line  of  his  own  from 
Los  Angeles  to  a  junction  with  the  Union  Pacific  at 
Ogden. 

Upon  investigation,  he  found  that  ten  or  twelve 
years  earlier,  the  Oregon  &  Utah  Northern  Railway 
Company,  a  subsidiary  of  the  Oregon  Short  Line  and 
the  Union  Pacific,  had  begun  and  partly  completed  a 
road  from  Salt  Lake  to  Los  Angeles  over  this  very 
route.  The  section  from  Salt  Lake  City  to  Milford, 
about  two  hundred  miles  in  length,  had  been  prac- 
tically finished,  while  grading  for  the  track  had  been 
carried  ninety  miles  farther  into  the  head  of  a  long, 


CONTESTS  WITH  CLARK  AND  KEENE    345 

narrow  canon  known  as  the  Meadow  Valley  Wash. 
In  the  period  of  financial  depression  that  followed 
the  panic  of  1893,  a  part  of  this  uncompleted  line  had 
been  abandoned  by  the  Union  Pacific,  while  in  other 
places  the  rails  had  been  taken  up  and  carried  away 
for  use  elsewhere.  Harriman  was  informed  by  his 
engineers  that  any  railroad  betw^een  Ogden  and  Los 
Angeles  would  have  to  follow  the  route  of  this  aban- 
doned line  and  pass  through  the  hundred-mile  canon 
known  as  the  Meadow  Valley  Wash.  He  therefore 
directed  his  construction  forces  to  take  possession 
of  the  old  right  of  way  of  the  Union  Pacific  through 
this  canon,  while  at  the  same  time  he  gave  orders 
to  prosecute  the  work  of  construction  between  the 
canon  and  southern  California.  Senator  Clark's 
construction  parties  followed  Mr.  Harriman's  into 
the  Meadow  Valley  W^ash,  and  after  a  number  of 
physical  clashes  between  the  rival  forces,  both  sides 
appealed  to  the  courts  to  sustain  the  rights  which 
each  claimed  to  have  in  this  narrow  gorge.  In  the 
course  of  litigation  it  was  found  that,  under  the  laws 
of  the  United  States  with  regard  to  the  occupanc}^  of 
gorges  and  canons,  neither  side  could  exclude  the 
other,  and  if  both  persisted  in  building  through  the 
canon,  their  respective  tracks  would  have  to  cross  each 
other  twenty-six  times  within  a  comparatively  short 
distance  on  account  of  the  narrowness  of  the  gorge. 


346  E.  H.  HARRIMAN 

•  When  this  state  of  affairs  was  realized,  a  truce  was 
declared  and  negotiations  were  begun  for  a  friendly 
settlement  of  the  controversy.  The  result  was  a 
compromise  between  Senator  Clark  and  the  Union 
Pacific  by  virtue  of  which  they  agreed  to  sell  to  each 
other  a  half-interest  in  their  respective  properties 
and  rights,  and  to  form  a  new  company  for  the  com- 
pletion of  the  road,  which  was  to  be  called  the  San 
Pedro,  Los  Angeles  &  Salt  Lake  Railway.  Under 
this  agreement,  which  was  dated  July  9,  1902,  the 
road  was  built  and  the  Union  Pacific  acquired  one 
half  of  its  capital  stock  with  joint  control  over  its 
management.^ 

Hardly  had  this  struggle  ended  when  Mr.  Harri- 
man  became  involved  in  another  contest  which 
threatened,  at  one  time,  to  deprive  him  of  the  man- 
agement, if  not  the  control,  of  the  whole  Southern 
Pacific  system.  In  pursuance  of  a  well-considered 
and  settled  policy,  he  had  been  putting  all  the  earn- 
ings of  the  Southern  Pacific  into  betterments,  in- 
stead of  into  dividends,  with  the  intention  of  so  im- 
proving and  upbuilding  the  road  as  to  increase  its 
usefulness  as  well  as  its  earning  capacity.  This  pol- 
icy created  dissatisfaction  among  some  of  the  short- 
sighted holders  of  the  company's  shares,  and  in  the 

^  See  Hearings  before  the  Interstate  Commerce  Commission  in  the 
matter  of  "Combination  and  Consolidation  of  Carriers,"  pp.  137-38, 
and  Millar  exhibits  52  and  53. 


CONTESTS  WITH  CLARK  AND  KEENE    347 

latter  part  of  1901,  the  noted  speculator  and  Wall 
Street  operator,  James  R.  Keene,  conceived  the  idea 
of  acquiring  a  large  amount  of  Southern  Pacific 
stock  and  then  bringing  such  pressure  to  bear  upon 
Mr.  Harriman  as  would  induce  or  force  him  to  begin 
the  payment  of  dividends  and  thus  largely  increase 
the  value  of  his  (Keene's)  holdings.  He  seems  to 
have  thought,  at  first,  that  he  could  get  Mr.  Harri- 
man to  join  him  in  this  speculative  scheme,  by  tempt- 
ing him  to  enrich  himself  at  the  expense  of  the  road 
whose  best  interests  he  was  in  honor  bound  to  pro- 
mote. Failing,  however,  to  make  any  impression 
upon  him,  Keene,  in  the  early  part  of  1902,  with  the 
assistance  of  the  Stock  Exchange  firm  of  Talbot  J. 
Taylor  &  Co.,^  formed  a  strong  combination,  or  pool, 
for  the  purpose  of  buying  from  200,000  to  400,000 
shares  of  Southern  Pacific  stock  and  then  forcing 
the  company  to  begin  the  payment  of  dividends. 
The  plan  of  the  managers  of  the  pool  was  to  bring  an 
action  in  the  courts  in  which  they  would  allege  that 
the  Southern  Pacific  Company  was  earning  more 
than  enough  money  to  pay  regular  dividends,  but 
that  the  directors  of  the  Union  Pacific,  who  had  con- 
trol of  it,  were  using  it  for  the  benefit  of  their  own 
road.  They  (the  pool  managers)  would  therefore  ask 
for  an  injunction  to  restrain  the  Union  Pacific  Com- 

*  Taylor  was  Keene's  son-in-law. 


348 


E.  H.  HARRIMAN 


pany  from  voting  its  750,000  shares  of  Southern 
Pacific  stock.  With  these  shares  tied  up  in  litigation, 
the  pool  managers  hoped  to  be  able,  at  the  next  an- 
nual meeting  of  Southern  Pacific  stockholders,  to 
oust  Harriman,  elect  a  board  of  directors  of  their 
own,  and  begin  the  payment  of  dividends.  Then, 
when  the  market  value  of  Southern  Pacific  shares 
had  largely  increased,  the  pool  members  would  un- 
load their  stock  upon  the  public  and  pocket  their 
profits.^ 

The  history  of  this  scheme,  up  to  the  time  when 
litigation  began,  was  briefly  given  by  Mr.  Harriman 
in  the  following  af^davit: 

One  evening  in  the  autumn  of  1901,  Mr.  Edward  Lau- 
terbach  ^  called  me  at  my  house  on  the  telephone  and 
stated  that  a  friend  of  his  had  a  matter  of  importance  to 
communicate  to  me  and  he  would  like  me  to  have  an  in- 
terview with  the  party  at  once.  To  this  I  assented  and 
during  the  evening  the  card  of  Mr.  David  Lamar,  ac- 
companied by  a  card  of  Edward  Lauterbach  identify- 
ing him,  was  presented  to  me.  I  saw  Mr.  Lamar  for 
about  ten  or  fifteen  minutes,  during  which  time  he 
stated  that  he  had  friendly  relations  with  Mr.  James  R. 
Keene,  who  had  a  large  holding  in  Southern  Pacific  and 

^  The  members  of  the  pool  succeeded  in  getting  about  240,000 
shares  of  Southern  Pacific  stock;  but  there  was  no  evidence  that  they 
bought  it  for  permanent  investment.  They  had  acquired  it  for  specu- 
lative purposes  only,  and  were  carrying  a  large  part  of  it  on  margins. 
(See  New  York  Times,  April  12,  19 14,  and  Railroads:  Finance  and 
Organization,  by  William  Z.  Ripley,  p.  217.) 

2  Mr.  Lauterbach  was  Keene's  legal  counsel  and  afterward  counsel 
for  the  pool. 


CONTESTS  WITH  CLARK  AND  KEENE    349 

was  contemplating  some  adverse  action  against  its  man- 
agement, and  that  he  (Lamar)  was  assured  that  there 
could  be  obtained  an  injunction  against  the  Union  Pa- 
cific somewhat  similar  to  that  obtained  against  the  Geor- 
gia Central,  in  which  latter  case  Mr.  Lamar  stated  he 
had  been  an  influential  and  important  factor.  He  stated 
that  he  would  like  to  work  with  me,  and  that  if  I  would 
make  an  alliance  which  would  be  of  some  advantage  to 
him,  he  had  such  influence  over  Mr.  Keene  that  he  could 
induce  him  not  to  instigate  any  adverse  action  against 
myself  and  allied  interests.  I  informed  Mr.  Lamar  that 
1  did  not  see  that  I  could  do  anything  regarding  the 
matter,  but  that  if  I  should  change  my  mind  I  would 
let  him  know.  I  walked  to  the  door  with  him,  and  he 
was  very  insistent  as  to  when  I  would  again  communi- 
cate with  him.  I  finally  took  his  telephone  number  and 
agreed  to  telephone  him  the  next  day,  which  I  did,  and 
stated  to  him  that  I  had  no  desire  to  pursue  the  matter 
further. 

About  that  same  time  I  had  several  interviews  with 
Mr.  James  R.  Keene,  brought  about  at  the  requests  of 
others.  Mr.  Keene  stated  to  me  that  he  had  a  large 
holding  in  Southern  Pacific  Company  stock,  that  he 
would  like  to  join  with  me  in  purchasing  the  shares  in 
the  market,  that  he  believed  there  could  be  a  great  deal 
of  money  made  thereby  and  that  he  would  act  for  me, 
either  in  purchasing  for  our  joint  account,  or  for  myself 
if  I  wished  it;  that  it  would  be  advantageous  for  the 
Union  Pacific  to  take  all  the  Southern  Pacific  stock  and 
issue  its  four  per  cent  bonds  therefor,  and  stated  that  he 
was  an  adept  in  carrying  out  successful  large  stock  mar- 
ket operations  and  that  he  had  shown  this  capacity  es- 
pecially in  the  manipulation  of  United  States  Steel 
stocks. 

I  carefully  explained  to  Mr.  Keene  the  requirements 
of  the  Southern  Pacific  properties,  such  as  the  replace- 


350  E.  H.  HARRIMAN 

ment  of  old  light  rails  with  new  heavy  ones;  new  and 
heavier  equipment —  both  motive  power  and  cars  — to 
replace  old  small-capacity  ones;  that  in  order  to  carry 
this  equipment  of  larger  capacity  the  track  would  not 
only  require  heavier  rails,  but  additional  ballasting  and 
renewal  of  ties,  heavier  and  new  steel  bridges  to  replace 
old  light  steel  and  wooden  structures,  the  lengthening  of 
present  side-tracks,  and  additional  ones,  as  well  as  addi- 
tional second  tracks ;  the  remodeling  and  enlargement  of 
terminals,  as  well  as  the  elimination  of  grades  and  curva- 
tures; and  that  all  the  surplus  net  earnings  for  some 
time  would  have  to  be  applied  for  such  requirements, 
improvements,  and  repairs ;  that  I  believed  it  would  be  a 
mistake  to  create  a  speculation  in  the  shares  of  the  stock 
and  advance  their  price  to  a  basis  that  would  justify  the 
buyers  in  expecting  a  dividend  in  the  near  future;  that 
it  was  also  necessary  to  make  such  repairs  and  improve- 
ments from  surplus  earnings,  so  far  as  they  would  go, 
in  order  to  establish  for  the  company  a  basis  of  credit 
upon  which  it  could  refund  the  bonded  indebtedness  of 
its  subsidiary  companies,  a  large  part  of  which  would 
mature  in  a  few  years,  and  that  there  was  nothing  be- 
tween the  stock  and  the  bonded  indebtedness  of  those 
companies  which  could  be  pledged  to  raise  the  neces- 
sary funds  for  such  work,  and  that  I  believed  that  our 
method  of  procedure,  as  outlined  to  him,  would  inure  to 
the  benefit  of  the  stockholders  in  the  future  much  more 
advantageously  than  in  any  other  way.  Mr.  Keene  as- 
sured me  that  he  did  not  want  to  act  in  any  way  antag- 
onistic to  me,  and  I  stated  to  him  that  I  would  let  him 
know  if  I  saw  any  reason  to  change  my  mind,  and  he 
said  that  he  would  do  nothing  without  informing  me. 

In  the  autumn  of  1902,  through  various  persons,  I 
was  informed  that  Mr.  Edward  Lauterbach  and  Mr. 
Talbot  J.  Taylor  would  make  trouble  for  us  unless  we 
settled  in  some  way  with  them.   Mr.  Lauterbach  tried 


CONTESTS  WITH  CLARK  AND  KEENE    351 

in  various  ways,  through  such  third  persons,  to  get  an 
interview  with  me,  and  at  one  time  called  me  on  the  tele- 
phone for  such  purpose,  but  I  declined  to  see  him,  and 
during  the  autumn  and  winter  of  1902  and  the  winter  of 
1903  I  had  several  calls  on  the  telephone  from  Mr.  La- 
mar; but  my  answer  through  the  messenger  announcing 
the  call  was  that  I  was  too  much  engaged  to  talk  with 
him.  Some  time  in  January,  1903,  Mr.  Lauterbach  ap- 
proached a  mutual  friend,  a  man  of  high  standing  and 
well  known,  and  made  to  him  statements  which  made 
him  believe  that  it  would  be  for  my  interest  to  take  the 
matter  up;  and  he  telephoned  and  requested  an  inter- 
view with  me.  At  the  interview  he  explained  to  me  that 
Lauterbach  had  said  to  him  that  Mr.  Keene  represented 
a  pool  holding  about  170,000  or  175,000  shares  [of 
Southern  Pacific  stock]  and  that  Mr.  Keene  himself 
held  about  70,000  shares;  that  they  contemplated  action 
which  would  make  us  a  great  deal  of  trouble  and  might 
be  disastrous  to  our  interests  (especially  laying  stress 
upon  the  large  expenditures  we  were  making  upon  the 
Central  Pacific  portion  of  the  Southern  Pacific  proper- 
ties) unless  we  purchased  such  shares  from  them ;  that  he 
would  sell  the  pool  shares  at  about  70  and  his  own 
shares  at  about  78.  I  explained  to  this  friend  that  there 
was  nothing  in  the  situation  which  we  had  to  fear  from 
those  people,  or  in  the  management  of  the  company, 
which  would  justify  any  criticism  or  objection  upon  the 
part  of  any  stockholders,  and  that  I  certainly  would  not 
be  forced  by  fear  of  anything  they  might  do  into  recom- 
mending a  course  which  would  be  adverse  to  the  inter- 
ests of  the  general  body  of  stockholders  of  the  Southern 
Pacific.  I  had  two  interviews  with  this  friend  on  this 
subject,  substantially  as  above  stated,  he  in  the  second 
intei-view  having  informed  me  that  he  had  communi- 
cated what  I  had  said  to  Mr.  Lauterbach.  Since  that 
time  there  have  been  several  attempts  made  by  Mr. 


352  E.  H.  HARRIMAN 

Lauterbach  and  Mr.  Lamar  to  take  the  matter  up  with 
me,  but  without  success.^ 

After  trying  first  to  bribe  Mr.  Harriman  by  offer- 
ing him  a  share  in  the  profits  of  the  speculation,  and 
then  to  intimidate  him  by  threatening  legal  proceed- 
ings which  would  cause  serious  "trouble,"  if  not 
"disaster,"  Mr.  Keene  and  his  associates,  in  the 
spring  of  1903,  began  a  suit  in  the  United  States 
Circuit  Court  at  Nashville  for  the  purpose  of  getting 
an  injunction  which  would  prevent  the  Union  Pacific 
Company  from  voting  its  Southern  Pacific  shares  at 
the  annual  meeting  of  Southern  Pacific  stockholders 
to  be  held  at  Beechmont,  Kentucky,  in  April  of  that 
year.  Senator  Foraker,  of  Ohio,  who  acted  as  coun- 
sel for  the  Keene  pool,  was  very  confident  of  success, 
and  is  said  to  have  declared  that  if  he  did  not  win 
the  suit  he  would  abandon  his  profession;  but  the 
result  showed  that  he  was  over-sanguine.  When  the 
case  came  to  trial,  Evarts,  of  New  York,  and  Max- 
w^ell,  of  Cincinnati,  who  represented  the  Pacific 
roads,  argued  that  the  court  had  no  jurisdiction,  and 
as  the  court  itself  was  of  that  opinion,  the  applica- 
tion for  an  injunction  was  denied.  This  practically 
ended  the  litigation,  because  on  the  very  next  day 
after  the  court  rendered  its  decision  the  annual  meet- 

»  Affidavit  of  E.  H.  Harriman  in  the  suit  of  Talbot  J.  Taylor  &  Co. 
against  the  Southern  Pacific  and  Union  Pacific  Companies. 


CONTESTS  WITH  CLARK  AND  KEENE    353 

ing  of  Southern  Pacific  stockholders  was  held  at 
Beechmont  and  the  Union  Pacific  Company  was  able 
to  vote  its  shares  and  retain  its  control.  This,  how- 
ever, would  have  been  the  result,  even  if  the  Keene 
pool  had  obtained  the  injunction  that  it  sought,  be- 
cause Mr.  Harriman,  in  order  to  guard  against  the 
possibility  of  an  adverse  decision  in  the  court,  had 
previously  sold  300,000  shares  of  Southern  Pacific 
stock  to  his  friend  and  supporter,  William  Rockefel- 
ler, of  the  Standard  Oil  Company.  These  shares 
would  not  have  been  affected  by  the  injunction,  and 
Rockefeller  would  have  voted  them  against  the  pool 
and  in  support  of  Mr.  Harriman's  policy.  On  the 
1st  of  May,  1903,  when  the  danger  had  passed,  this 
stock  was  resold  to  the  Union  Pacific  Company. 
Thus  Mr.  Harriman,  through  the  support  of  his 
powerful  group  of  friends,  would  have  been  able,  in 
any  event,  to  frustrate  the  plans  of  the  strongest 
combination  of  speculators  that  had  ever  been  ar- 
rayed against  him. 

The  pool,  after  failing  to  paralyze  the  Union  Pa- 
cific by  means  of  an  injunction,  was  forced  to  liqui- 
date its  holdings  on  a  declining  market  and  eventu- 
ally sold  its  stock  at  a  loss,  it  was  said,  of  about 
$3,000,000.  Talbot  J.  Taylor  &  Co.,  who  had  co- 
operated with  Keene  in  the  formation  of  the  pool, 
were  so  weakened  by  its  collapse  that  they  soon 


354  E.  H.  HARRIMAN 

afterward  went  out  of  business.^  Thus  ended  one  of 
the  boldest  and  best-planned  attempts  that  had  ever 
been  made  to  compel  a  railroad  company  to  distrib- 
ute in  dividends  money  that  it  needed  for  repairs, 
betterments,  and  new  equipment.  It  made  for  Mr. 
Harriman  a  new  lot  of  enemies,  but  it  enhanced  his 
reputation  as  a  conservative  railroad  manager  and 
as  a  formidable  antagonist  in  a  fight. 

A  number  of  successful  or  unsuccessful  attempts 
were  made,  in  the  first  decade  of  the  twentieth  cen- 
tury, to  wrest  the  control  of  railroad  properties  from 
managers  who  happened  to  hold  less  than  a  majority 
of  the  capital  stocks.  Harriman  and  his  associates, 
for  example,  nearly  succeeded  in  ousting  Morgan 
and  Hill  from  the  management  of  the  Northern  Pa- 
cific by  purchasing  a  majority  of  that  road's  out- 
standing shares,  while  they  themselves,  in  turn,  were 
deprived  of  control  of  the  Chicago  &  Alton  by  sim- 
ilar means.  Many  railroads,  at  that  time,  were  man- 
aged by  men  who  owned  only  thirty  or  forty  per  cent 
of  the  capital  stock.  If  a  single  group  of  associated 
interests  controlled,  say,  one  third  of  the  outstand- 
ing shares,  its  supremacy  was  regarded  as  assured, 
because  it  could  almost  always  get  support  enough 
from  the  other  scattered  stockholders  to  give  it  a 
safe  majority  at  every  annual  meeting.    Hill  and 

*  New  York  Times,  April  12,  1914. 


CONTESTS  WITH  CLARK  AND  KEENE    355 

Morgan,  prior  to  1901,  never  controlled  more  than 
forty  per  cent  of  the  outstanding  stock  of  the  North- 
ern Pacific,  and  yet  they  managed  the  property  as  if 
they  owned  it  all.  Harriman  and  his  associates,  in 
T901,  held  only  thirty-seven  and  a  half  per  cent  of 
the  stock  of  the  Southern  Pacific,  but,  so  far  as  the 
direction  of  its  affairs  was  concerned,  their  power 
was  virtually  supreme. 

There  was  always  a  danger,  however,  that  a  mi- 
nority group  might  be  deprived  of  its  control  by  the 
secret  stock  purchases  of  a  similar  but  perhaps  more 
powerful  group.  From  the  correspondence  of  SchifT 
with  Harriman  in  1901  and  1902,  it  is  evident  that 
this  danger  was  always  present  in  their  minds,  and 
that  they  tried  to  minimize  it,  as  far  as  possible,  by 
organizing  pools  or  syndicates  of  friendly  capitalists 
who  were  willing  to  buy,  and  to  hold  for  a  term  of 
years,  stock  or  convertible  bonds  enough  to  offset  any 
secret  purchases  that  might  be  made  by  rival  or 
hostile  interests.  Such,  for  example,  was  the  Union 
Pacific  convertible  bond  pool  of  1901  and  1902.  In  a 
letter  written  by  Mr.  Schiff  to  Mr.  Harriman  in 
September,  1901,  the  former  said: 

Concerning  the  winding  up  of  the  Union  Pacific  con- 
vertible bond  pool,  of  which  you  speak,  I  think  it  would 
be  inadvisable  to  give  up  the  call  which  you  and  Kuhn, 
Loeb  &  Co.  practically  now  have  on  these  holdings  for 
over  two  years  yet.   It  cannot  be  foreseen  how  this  may 


356  E.  H.  HARRIMAN 

stand  us  in  good  stead  hereafter;  and  until  we  are  abso- 
lutely certain  that  our  rear  is  safe,  and  that  no  attempts 
are  likely  to  be  made  by  others  to  get  control  of  the 
Union  Pacific,  which  has  become  the  most  important 
and  valuable  system  in  the  United  States,  I  should  not 
advise  to  let  go  of  the  convertible  bond  pool,  though  we 
should  continue  to  liquidate  it  as  heretofore.  This  liq- 
uidation must  necessarily  be  slow,  assuring  us,  for  a 
long  time,  the  control  of  a  considerable  amount  of  the 
bonds  in  case  of  need.  ...  It  is  not  possible  that  we 
permanently  hold  a  sufficient  amount  of  Union  Pacific 
stock  to  absolutely  control  the  company  (nor  can  any 
one  else),  and  we  shall  for  this  control  have  to  rely,  in 
the  first  instance,  on  the  good-will  of  our  shareholders. 
I  have  long  felt,  and  feel  now  more  than  ever,  that  we 
must  strengthen  our  holdings  of  Southern  Pacific  stock; 
for  while  it  is  not  likely  that,  with  the  thirty-seven  and 
a  half  per  cent  of  stock  which  the  Union  Pacific  holds, 
any  other  combination  can  get  control,  it  is  safer,  with 
so  able  and  unprincipled  a  manipulator  as  James  R. 
Keene  holding  a  very  large  amount  of  the  stock,  to  have 
an  additional  considerable  amount  in  friendly  hands. ^ 

About  a  year  later  (August  31,  1902),  Mr.  SchifT 
wrote  another  letter  to  Mr.  Harriman  on  the  same 
general  subject  in  which  he  said: 

That  we  must  find  ways  and  means  to  tighten  and 
make  permanent  our  hold  on  the  Union  Pacific  becomes 
more  evident  every  day;  but  it  is  also  very  clear  to  me 

^  Three  hundred  thousand  shares  were  afterward  placed  in  the 
"friendly  hands"  of  William  Rockefeller  to  be  used  against  Keene  in 
case  the  latter  should  try  to  get  control.  Whether  Rockefeller  bought 
for  himself,  individually,  or  for  a  syndicate  of  which  he  was  the  head, 
does  not  appear;  but  the  object  of  the  investment  was  to  offset  Keene's 
purchases  and  thus  strengthen  Harriman. 


CONTESTS  WITH  CLARK  AND  KEENE    357 

that  to  attempt  to  lease,  until  we  have  a  very  firm  hold, 
would  be  extremely  dangerous,  with  all  the  possibilities 
that  we  may  have  to  face.  I  feel  we  would  have  saved 
ourselves  much  and  frequent  uneasiness  if  we  had  classi- 
fied the  board.  ^ 

Mr.  Harriman  evidently  shared  Schiff's  anxiety, 
and  six  weeks  later  (November  11,  1902),  with  the 
cooperation  of  Kuhn,  Loeb  &  Co.,  he  formed  a  pool 
or  syndicate  of  nine  members  which  agreed  to  buy, 
as  a  more  or  less  permanent  investment,  approxi- 
mately 500,000  shares  of  Union  Pacific  preferred 
stock.  The  members  and  the  amounts  taken  by  them 
respectively  were  as  follows: 

E.  H.  Harriman $10,000,000 

Kuhn,  Loeb  &  Co 10,000,000 

James  Stillman 10,000,000 

William  Rocketeller 5,000,000 

H.  H.  Rogers 5,000,000 

W.  K.  Vanderbilt 5,000,000 

James  H.  Hyde 2,000,000 

H.  C.  Frick 1,250,000 

P.  A.  Valentine 1,250,000  * 

Harriman,  Schifl,  and  Stillman  w^ere  made  mana- 

*  So  as  to  provide  for  the  election  of  only  tw'O  or  three  directors  at  a 
time.  This  would  prevent  a  clean  sweep  of  the  board  at  any  single 
annual  meeting  in  case  hostile  interests  should  succeed  in  getting 
temporary  control. 

2  Unimportant  changes  were  subsequently  made  from  time  to  time 
in  the  membership  of  the  pool  or  in  the  amounts  subscribed.  Vander- 
bilt, for  example,  transferred  his  stock  to  the  Chicago  &  Northwestern 
Railway  Company  and  acted  for  the  latter  as  trustee.  The  partici- 
pants in  this  pool,  taken  together,  probably  represented,  potentially, 
the  greatest  aggregation  of  capital  then  existing  in  the  United  States. 


3'58  E.  H.  HARRIMAN 

gers  of  the  pool,  with  discretionary  power  to  buy  or 
sell,  and  it  was  agreed  that,  unless  previously  liqui- 
dated by  general  consent,  the  pool  should  continue 
to  hold  the  stock  for  a  period  of  five  years.  This  ac- 
cumulation of  500,000  shares  in  the  hands  of  a  few 
men  who  were  in  sympathy  with  Mr.  Harriman  and 
his  plans  would  have  been  an  almost  insurmountable 
obstacle  in  the  way  of  any  group  of  speculators  who 
should  seek  to  capture  the  Union  Pacific  by  means  of 
a  sudden  and  unexpected  raid. 

Covertly  organized  pools  of  this  kind  were  re- 
garded by  the  public,  at  one  time,  with  a  good  deal 
of  suspicion,  for  the  reason  that  their  object  was 
supposed  to  be  the  secret  manipulation  of  railway 
stocks;  but  for  this  suspicion  there  was,  in  most 
cases,  no  valid  foundation.  Harriman,  in  reconstruct- 
ing and  reequipping  the  Union  Pacific  and  Southern 
Pacific  systems,  was  engaged  in  a  highly  important 
and  beneficent  piece  of  work,  and  his  friends,  who 
had  faith  in  his  plans,  resorted  to  defensive  combina- 
tions as  a  means  of  protecting  him  from  alien  and 
often  purely  speculative  >  interference.  Such  com- 
binations had  to  be  made  secretly,  in  order  to  pre- 
vent hostile  interests  from  becoming  aware  of  their 
existence.  It  would  have  been  little  short  of  a  public 
misfortune  if  Harriman*s  plans  for  the  extension  and 
betterment  of  railroad  transportation  in  the  Great 


CONTESTS  WITH  CLARK  AND  KEENE    359 

West  had  been  thwarted,  and  he  himself  eliminated, 
as  the  result  of  a  change  in  control  brought  about  by 
alien  interests  for  speculative  and  purely  selfish  pur- 
poses. It  was  to  guard  against  such  a  possibility  that 
the  fifty-million-dollar  pool  was  formed;  and  its 
managers  bought  the  preferred  stock,  rather  than 
the  common,  for  the  reason  that  the  former  had 
equal  voting  power,  with  less  liability  to  extreme 
fluctuation  in  market  value. 


CHAPTER  XIV 
HARRIMAN  AND  THE  ERIE 

ONE  of  the  first  of  the  Eastern  trunk-lines  to 
attract  Mr.  Harriman's  attention  was  the 
Erie.  The  fact  that  his  great  country  estate  at  Arden 
was  situated  on  that  road  naturally  gave  him  a  per- 
sonal interest  in  it,  and  in  1894,  when  it  was  in  the 
hands  of  a  receiver,  he  became  one  of  the  most  ener- 
getic opponents  of  the  plan  of  reorganization  that 
had  been  devised  and  proposed  by  Drexel,  Morgan 
&  Co.  When  that  plan  failed,  as  Mr.  Harriman  pre- 
dicted that  it  would  fail,  he  withdrew  for  a  time 
from  active  participation  in  Erie  affairs;  but,  as  a 
security-holder  as  well  as  a  resident  on  the  line,  he 
continued  to  take  a  watchful  interest  in  the  manage- 
ment of  the  property.  After  Mr.  F.  D.  Underwood 
was  elected  president  of  the  company,  in  1901,  Mr. 
Harriman  expressed  a  wish  to  become  a  director. 
He  and  Mr.  Underwood  had  previously  been  asso- 
ciated in  the  management  of  the  Baltimore  &  Ohio, 
and  both  were  desirous  of  continuing  that  friendly 
association  in  the  Erie.  The  only  obstacle  in  the  way 
was  a  possible  objection  on  the  part  of  J.  P.  Morgan, 
whose  firm  had  done  most  of  the  financing  of  the 


HARRIMAN  AND  THE  ERIE  361 

company  after  the  receivership,  and  whose  interests 
were  dominant  at  that  time  in  the  board.  Morgan 
had  had  two  or  three  clashes  with  Harriman,  and  it 
was  thought  that  the  latter's  election  as  director 
without  his  approval  might  cause  friction.  For  a 
time,  therefore,  the  matter  was  held  in  abeyance.  In 
September,  1903,  the  death  of  Abram  S.  Hewitt  left 
a  vacancy  in  the  board,  and  Mr.  Morgan  was  in- 
formed that  it  would  please  the  directors  if  Mr.  Har- 
riman could  be  chosen  to  fill  it.  Mr.  Morgan  ex- 
pressed neither  approval  nor  disapproval,  but  merely 
said  that  ''  the  matter  rested  entirely  with  the  board 
of  directors  and  the  president."  Thereupon,  at  a 
meeting  of  the  board  held  September  30,  1903,  Har- 
riman was  elected  to  fill  the  vacancy,  and  a  little 
later  (June  28,  1905)  he  became  a  member  of  the 
executive  committee. 

As  subsequent  events  proved,  the  president  and 
directors  could  not  have  secured  a  more  valuable 
adviser  and  supporter  in  the  great  work,  which  they 
had  already  begun,  of  transforming  the  Erie  into  a 
first-class  trunk-line,  which  could  compete,  on  some- 
thing like  equal  terms,  with  the  New  York  Central 
and  Pennsylvania.  The  road,  at  that  time,  was  suf- 
fering from  a  freight-traffic  congestion  in  several 
parts  of  the  main  line  where  grades  were  heavy  and 
operating  facilities  inadequate.    This  was  particu- 


362  E.  H.  HARRIMAN 

larly  the  case  in  the  New  York  and  Alleghany  divi- 
sions, where  trains  had  to  be  moved  over  grades  that 
ranged  from  0.8  per  cent  to  1.5  per  cent.  With  a 
view  to  improving  these  parts  of  the  system  and  thus 
relieving  the  congestion,  the  company  decided  to 
build  two  low-grade  branches,  or  extensions;  one  of 
them  forty-two  miles  in  length  in  the  New  York 
division,  and  the  other  thirty-three  miles  in  length 
in  the  Alleghany  division.  These  branches  subse- 
quently became  known  as  the  Erie  &  Jersey  and  the 
Genesee  River  railroads. 

In  order  to  provide  funds  for  this  new  construc- 
tion, the  directors  authorized  the  issue  of  Erie  con- 
vertible bonds;  but  before  the  work  had  been  long 
under  way,  financial  conditions  became  such  that 
the  bonds  could  not  be  sold  at  prices  that  would  war- 
rant their  flotation.  Meanwhile,  contracts  had  been 
made  for  a  large  part  of  the  construction  material 
and  some  of  it  was  already  on  the  ground.  In  1905, 
after  the  company  had  spent  about  $1,500,000  on 
the  projected  extensions,  work  was  temporarily  sus- 
pended for  lack  of  funds.  Mr.  Harriman  then  pro- 
posed that  the  new  lines  be  organized  as  independent 
companies,  subsidiary  to  the  Erie,  but  separate  from 
it.  They  could  then  issue  their  own  first  mortgage 
bonds,  at  an  attractive  price,  and  earn  the  interest 
on  them  by  leasing  the  roads  to  the  Erie  when  com- 


Hx^RRIMAN  AND  THE  ERIE  363 

pleted.  This  seemed  to  be  a  perfectly  practicable 
^plan,  but,  unfortunately,  the  State  Commission 
fixed  a  minimum  price,  at  which  the  bonds  could  not 
be  sold.  Mr.  Harriman  then  proposed,  and  success- 
fully negotiated,  a  loan  of  $5,000,000  upon  short- 
term  notes,  secured  by  these  bonds  and  the  Erie's 
guarantee,  the  two  subsidiary  companies  agreeing 
not  to  issue  any  additional  bonds  without  the  con- 
sent of  the  note-holders.  In  this  way  the  necessary 
funds  were  finally  obtained  and  the  Erie  &  Jersey 
and  Genesee  River  railroads  were  built. 

The  completion  of  these  two  branch  lines  greatly 
benefited  the  Erie  by  lowering  grades,  cutting  down 
operating  expenses,  and  providing  capacity  for  in- 
creased traffic.  On  the  New  York  division,  for  ex- 
ample, the  maximum  grade  was  reduced  from  74  feet 
to  26  feet  per  mile  eastbound,  and  from  75  feet  to  53 
feet  westbound,  while,  at  the  same  time,  the  full 
train-load  was  increased  from  556  tons  to  3193  tons 
eastbound  and  from  520  tons  to  18 12  tons  west- 
bound. On  the  Alleghany  division  the  grade  was 
reduced  from  42  feet  to  10  feet  eastbound,  and  from 
53  feet  to  16  feet  westbound,  while  the  train-load 
was  increased  from  1350  tons  to  3812  tons  eastward 
and  from  1106  tons  to  3071  tons  westward. 

After  these  two  branches  had  been  completed,  Mr. 
Harriman  urged  the  importance  of  increasing  equip- 


364  E.  H.  HARRIMAN 

ment.  '*  You  may  fix  your  grades,**  he  said,  *'  so  as  to 
move  a  large  traffic;  but  you  will  lose  the  benefits 
that  should  accrue  if  you  don't  keep  your  equipment 
in  balance  with  your  track  betterments."  Some 
railroads,  prior  to  that  time,  had  been  in  the  habit  of 
saving  money,  when  hard-pressed  financially,  by 
going  without  equipment  that  was  really  needed.  In 
one  case,  cited  by  Mr.  Harriman,  the  president  of  an 
important  railway  company  in  the  West  made  it  a 
practice  to  go  over  his  line  regularly,  once  every  year, 
and  systematically  cut  down  the  expense  estimates 
of  his  subordinates,  no  matter  how  reasonable  they 
were.  That  road  never  prospered  and  eventually 
went  into  the  hands  of  a  receiver.  In  another  case, 
an  equally  prominent  Eastern  road  tried  to  save 
money  by  using  cheaper  lights  —  and  even  oil  lan- 
terns —  in  its  passenger  coaches.  Mr.  Harriman 
strongly  disapproved  of  such  cheese-paring  economy, 
and  when  one  of  the  directors  of  the  Erie  proposed  to 
stop  altogether,  for  a  time,  the  making  of  equipment 
purchases,  Harriman  interposed  an  emphatic  objec- 
tion. "The  way  to  save  nioney,**  he  said,  ''is  to 
spend  it."  By  this  he  meant  not  that  money  should 
be  squandered,  but  that  it  should  be  spent  freely 
where  the  expenditure  would  increase  earning  power 
and  thus  bring  in  more  revenue. 

At  a  meeting  of  the  Erie  executive  committee  one 


HARRIMAN  AND  THE  ERIE  365 

day  a  requisition  was  presented  for  a  comparatively 
small  sum  of  money  —  ten  or  twelve  thousand  dol- 
lars —  to  buy  mules  for  hauling  purposes  in  the  com- 
pany's coal  mines.  There  were  differences  of  opinion 
with  regard  to  the  matter,  and  after  listening  to  the 
discussion  impatiently  for  a  time,  Harriman  said: 
**  If  the  manager  in  charge  cannot  be  trusted  to  buy 
mules  without  bringing  the  subject  to  the  executive 
committee,  a  new  manager  should  be  selected.  My 
time  is  worth  about  a  mule  a  minute  and  I  can't  stay 
to  hear  the  rest  of  this  discussion.  I  vote  'Aye'  on 
the  requisition."   He  then  left  the  room. 

On  the  question  of  spending  money  for  permanent 
improvements  and  better  equipment,  Mr.  Harriman 
almost  always  voted  "Aye,"  and  his  influence,  abil- 
ity, financial  experience,  and  personal  prestige  were 
very  helpful  to  the  Erie  between  the  years  1903  and 
1906,  when,  with  limited  resources  and  impaired 
credit,  the  company  was  taking  the  first  steps  to- 
ward the  realization  of  a  far-sighted  and  compre- 
hensive plan  for  the  betterment  of  the  property.  In 
speaking  of  this  plan,  many  years  later,  the  ''Rail- 
way Age  Gazette"  said: 

The  history  of  the  Erie  since  1902  is  unique,  in  that  it 
is  the  only  instance  in  American  railroad  history  where 
a  large  system,  with  a  funded  debt  utterly  dispropor- 
tionate to  the  value  of  the  property,  has  been  reha- 
bilitated without  the  intervention  of  the  courts  and  a 


366  E.  H.  HARRIMAN 

receivership,  and  without  reorganization.  In  the  years 
prior  to  1902,  not  only  did  the  Erie  have  a  top-heavy 
load  of  bonds,  but  its  credit  was  almost  exhausted  and 
its  physical  condition  was  such  as  to  make  its  operation 
uneconomical.  The  morale  of  its  organization  was  al- 
most equally  bad.  The  history  of  the  development  of 
the  Erie  Railroad  since  then  is,  in  considerable  part, 
an  account  of  the  domination  of  one  man's  personal- 
ity, sound  common  sense  and  persistence,  in  the  face 
of  an  unusually  large  proportion  of  "  unsurmountable 
difficulties." 

The  Erie  pulled  itself  out  of  its  hole  by  its  own  boot- 
straps; or,  to  put  it  in  another  way,  its  rehabilitation 
went  on  "under  traffic."  The  physical  condition  of  the 
road  was  such  as  to  make  it  impossible  to  effect  econo- 
mies in  operation  without  the  additional  investment  of 
large  sums  of  money.  With  the  small  margin  of  earnings 
above  fixed  charges,  the  company's  credit  was  such  as  to 
preclude  the  possibility  of  any  large  issue  of  securities  to 
provide  funds  for  a  general  programme  of  additions  and 
betterments.  Before  the  service  and  economy  of  opera- 
tion could  be  much  improved,  modern  facilities  would 
have  to  be  provided,  and  this  was  a  question  of  estab- 
lishing credit,  and  so  the  circle  of  "impossibilities"  was 
complete. 

In  1 90 1,  Frederick  D.  Underwood  was  made  presi- 
dent, and  among  the  first  things  he  did  was  to  gain  the 
confidence  of  his  board  of  directors  so  securely  that  he 
held  it  even  through  the  trying  times  of  1907  and  1908. 
.  .  .  This  backing  of  the  directors  has  been  of  great  im- 
portance in  the  success  of  the  development  of  the  prop- 
erty. There  have  been  numerous  instances  where  a 
board  of  directors  could  be  carried,  by  a  more  or  less 
temporary  burst  of  confidence,  into  granting  authority 
to  inaugurate  a  large  system  of  expensive  improve- 
ments; but  the  Erie's  case  demanded  a  continuing  faith 


.A  V 


*       HARRIMAN  AND  THE  ERIE  367 

in  the  face  of  difficulties  which  arose  one  after  another, 
year  in  and  year  out,  for  a  long  period  of  time.  The  pro- 
gramme of  physical  betterments  had  to  be  carried  out 
bit  by  bit  as  the  money  could  be  raised.  .  .  .  The  key- 
note to  the  upbuilding  of  the  Erie  has  been  the  orderly 
carrying  out  ot  a  plan  adopted  after  careful  considera- 
tion and  thereafter  adhered  to  strictly. 

After  stating  that  the  road  weathered  its  most 
difficult  time  while  Harriman  was  a  member  of  the  ex- 
ecutive committee,  the  "  Railway  Age  Gazette  "  says: 

The  Erie,  unquestionably,  owes  to  Mr.  Harriman  and 
his  immediate  associates  much,  as  regards  the  breadth 
and  scope  of  the  plan  of  rehabilitation  and  the  tenacity 
with  which  it  was  adhered  to  under  the  most  trying  cir- 
cumstances.^ 

Not  long  after  Mr.  Harriman  became  a  director  of 
the  Erie,  there  were  two  serious  strikes  of  workmen 
in  the  company's  shops.  The  first  one  was  begun  by 
the  boiler-makers,  who  insisted  that  no  foreman 
should  be  appointed  without  their  approval;  that 
the  number  of  apprentices  should  be  limited;  that 
double  pay  should  be  given  for  overtime,  and  that 
there  should  be  no  piece-work.  A  little  later  a  strike 
was  begun  by  the  machinists,  who  made  substan- 
tially the  same  demands.  The  question  then  came 
up:  Should  the  company  yield,  or  compromise,  or 
fight?   It  was  Mr.  Harriman's  judgment  that  these 

^  "Studies   in   Operation  —  The    Erie    Railroad";   Railway   Age 
Gazette,  April  28,  19 16,  pp.  939-42. 


368  E.  H.  HARRIMAN 

two  strikes  should  be  fought  out  to  a  finish,  and  it 
was  largely  through  his  courage  and  his  influence 
in  the  board  that  they  were  so  fought  out.  They  cost 
the  company  about  $1,800,000,  but  the  wisdom  of 
the  policy  that  Harriman  advocated  and  the  board 
adopted  was  shown  by  the  fact  that  after  the  partly 
new  force  of  workmen  had  been  organized,  sixty  per 
cent  more  work  was  done  than  had  been  done  before 
on  the  same  floor  area,  and  there  was  industrial 
peace  in  the  shops  for  a  period  of  ten  years. 

One  of  the  most  extraordinary  episodes  in  the 
history  of  the  Erie  after  Mr.  Harriman  became  a 
member  of  the  executive  committee  was  the  pur- 
chase of  a  controlling  interest  in  the  Cincinnati, 
Hamilton  &  Dayton  Railroad  from  J.  P.  Morgan,  on 
the  20th  of  September,  1905,  at  a  cost  of  $12,000,000, 
and  the  resale  of  the  same  interest  to  the  same 
banker,  at  the  same  price,  two  and  a  half  months 
later.  The  circumstances  that  brought  about  the 
purchase  were  stated  by  the  Interstate  Commerce 
Commission  as  follows: 

The  acquisition  of  the  C.  H.  &  D.  by  the  Erie  was  not 
a  new  subject  in  the  minds  of  Erie  officials  and  directors. 
It  had  been  seriously  considered  at  different  times  for 
several  years  prior  to  the  actual  purchase.  The  value  of 
the  C.  H.  &  D.  to  the  Erie,  from  a  traffic  standpoint,  had 
been  investigated  and  favorably  reported,^  the  southern 

*  By  H.  B.  Chamberlain,  third  vice-president  and  general  traffic 
manager  of  the  Erie  Company,  in  a  report  dated  May  23,  1904. 


HARRIMAN  AND  THE  ERIE  369 

connections  through  Cincinnati  and  western  connec- 
tions through  IndianapoHs  being  looked  upon  as  of  par- 
ticular value.  .  .  .  According  to  the  testimony  of  Presi- 
dent Underwood,  of  the  Erie,  there  were  no  negotiations 
carried  on  for  this  purchase,  by  him  or  by  any  one  else  in 
behalf  of  the  Erie,  prior  to  an  interview  he  had  with 
J.  P.  Morgan,  at  the  latter's  request,  on  August  16,  1905, 
at  which  Morgan  said : 

**When  I  was  more  active  in  the  Erie  than  now,  and 
during  Mr.  Coster's  time,  it  was  always  thought  that 
sometime  the  C.  H.  &  D.  would  become  the  property  of 
the  Erie.  Now  I  have  to  say  to  you  that  if  it  is  still  the 
intention  of  the  Erie  board,  and  it  is  desirable  on  the 
part  of  the  Erie  Company,  to  acquire  the  C.  H.  &  D., 
they  will  have  to  move  quickly  in  the  matter,  for  it  is  to 
be  sold  soon  and  there  are  other  purchasers  after  it."^ 

He  then  submitted  a  statement  showing  the  condi- 
tion of  the  C.  H.  &  D.,  which  was  taken  under  advise- 
ment by  President  Underwood  and  his  staff.  ^ 

Without  making  an  inquiry  as  to  the  date,  au- 
thenticity, or  trustworthiness  of  this  statement,  and 
without  investigating  independently  the  financial 
condition  of  the  C.  H.  &  D.  Company,  the  Erie  of- 
ficials decided  to  make  the  purchase,  and  on  the  very 
next  day  (August  17,  1905)  President  Underwood 
personally  authorized  J.  P.  Morgan  to  buy  for  the 

*  The  "other  purchasers"  were  the  members  of  a  syndicate  sup- 
posed to  represent  the  so-called  "Hawley  interests."  It  was  composed 
of  Edwin  Hawlcy,  D.  G.  Reid,  Newman  Erb,  John  W.  Gates,  T.  P. 
Shonts,  Paul  Morton,  and  others. 

2  *'/n  Re  Pere  Marquette  Railroad  Company  and  C.  H.  &  D.  Rail- 
road Company,"  Interstate  Commerce  Commission  Reports^  No.  6833 
(March  13,  1917),  p.  159. 


370  E.  H.  HARRIMAN 

Erie  a  majority  of  the  C.  H.  &  D.  stock.  In  a  letter 
to  Mr.  Morgan,  dated  August  i8,  1905,  President 
Underwood  said  that  grade  reductions  and  other 
improvements  which  were  then  in  progress  on  the 
Erie  would  enable  the  road  to  handle  more  traffic 
than  was  then  tributary  to  it;  that  the  properties 
which  it  was  proposed  to  acquire  would  largely  in- 
crease such  traffic,  and  that  they  ''were  worth  more 
to  the  Erie  than  to  any  other  interest  on  the  map." 
He  predicted  that  in  five  years'  time,  the  increase  in 
revenues  from  the  haul  of  anthracite  coal  on  the 
Erie,  and  the  sales  thereof  in  the  territory  traversed 
by  these  lines  and  their  connections  across  Lake 
Michigan  to  the  northwest,  would,  in  itself,  go  a  long 
way  toward  paying  the  interest  on  the  proposed 
investment.^ 

In  explaining  subsequently  the  haste  with  which 
he  acted  on  Morgan's  suggestion.  President  Under- 
wood said  that  he  was  influenced  by  the  rumor  that 
the  C.  H.  &  D.  was  in  danger  of  falling  into  other 
hands.  " I  did  not  at  that  time  want,"  he  said,  "to 
see  the  C.  H.  &  D.  get  into  the  hands  of  any  interest 
that  would  divert  its  traffic  from  the  Erie  Railroad, 
and  that  was  one  of  the  prime  factors  that  made  us 
move  when  we  did."^ 

On  the  9th  of  September,  1905,  J.  P.  Morgan,  as 

1  "In  Re  Pere  Marquette,"  etc.,  p.  160.  *  Ibid.,  p.  164. 


HARRIMAN  AND  THE  ERIE  371 

banker  for  the  Erie,  entered  into  a  contract  for  the 
purchase  of  about  74,000  shares  of  C.  H.  &  D.  stock 
at  $160  a  share.  Three  weeks  later  (September  20, 
1905,)  the  board  of  directors  approved  the  action  of 
the  president  in  orally  agreeing  to  take  the  stock 
from  Morgan,  and  on  the  loth  of  October  the  Erie 
shareholders  ratified  the  purchase.  At  the  same  time, 
the  Erie  Company  issued  its  short-term  notes  for 
the  sum  of  $11,835,000  in  payment  to  Morgan  & 
Co.  for  74,059  shares  of  C.  H.  &  D.  stock,  including 
$392,630  in  commissions.  It  then  virtually  took 
possession  of  the  C.  H.  &  D.  by  electing  directors 
and  general  officers  of  that  company. 

In  making  this  purchase,  the  Erie  relied  wholly 
upon  the  statement  furnished  by  J.  P.  Morgan, 
which  seemed  to  show  that  the  C.  H.  &  D.  was  earn- 
ing its  fixed  charges  and  was  consequently  solvent. 
Such,  however,  was  far  from  being  the  case.  The 
real  condition  of  the  company,  and  the  causes  that 
had  brought  about  that  condition,  are  briefly  sum- 
marized by  Professor  Ripley  as  follows: 

Within  three  years  prior  to  1905,  the  road  was  passed 
in  succession  through  no  less  than  four  syndicates.  The 
first  pool  was  formed  in  1902  to  purchase  the  Fere  Mar- 
quette road,  which  ran  crosswise  of  the  main  trunk- 
lines  up  into  Michigan.  The  plan  was,  by  threat  of  ex- 
tending it  east  and  west  to  Buffalo  and  Chicago,  to 
force  it  upon  the  Vanderbilt  roads  at  a  profit.  This 


372  E.  H.  HARRIMAN 

project  failed,  leaving  the  bankers  with  a  heavy  burden 
of  unsalable  and  non-dividend-paying  securities.  In  the 
meantime  another  independent  cross-line,  the  Chicago, 
Cincinnati  &  Louisville,  had  been  constructed  almost 
into  Chicago  by  a  second  syndicate.  A  third  pool  al- 
ready controlled  the  Dayton  road.  These  three  groups 
all  overlapped  in  membership.  All  parties  finally  de- 
cided to  join  forces.  The  Pere  Marquette  was  sold  to  the 
Dayton  road,  by  payment  in  Dayton  bonds  and  notes  at 
the  rate  of  $125  for  Marquette  stock  which  had  cost  $85 
per  share.  This  recompensed  the  first  syndicate  liber- 
ally. The  second  syndicate,  which  had  built  the  line 
toward  Chicago,  was  paid  for  its  services  in  Marquette 
notes.  The  third  syndicate,  controlling  the  Dayton 
road,  now  made  its  profit  in  turn  by  selling  the  com- 
bined properties  to  a  fourth  syndicate.^ 

And  it  was  this  fourth  syndicate,  headed  by  H.  B. 
Rollins  &  Co.,  which  offered  the  C.  H.  &  D.  to  Mor- 
gan, with  the  intimation  that  if  he  did  not  take  it, 
others  would. 

As  the  result  of  the  sales,  purchases,  stock- water- 
ing, and  speculative  manipulation  above  outlined, 
the  C.  H.  &  D.,  when  the  Erie  bought  it,  was  prac- 
tically bankrupt  and  was  liable  for  the  deficits  of 
three  other  companies,  namely,  the  Pere  Marquette, 
the  Chicago,  Cincinnati  &  Louisville,  and  the  Toledo 
Railway  &  Terminal.  In  the  words  of  the  Interstate 
Commerce  Commission:  ''The  Erie,  in  buying  the 

1  Railroads:  Finance  and  Organization,  by  Professor  William  Z. 
Ripley,  pp.  215-16 


HARRIMAN  AND  THE  ERIE  373 

C.  H.  &  D.,  was  not  buying  a  system  which  was  then 
paying  its  fixed  charges,  but  a  system  which  had 
fallen  short  of  doing  so  by  over  a  million  and  three- 
quarters  of  dollars,"  not  including  interest  charges  of 
nearly  half  a  million  on  the  Erie's  own  securities, 
issued  to  raise  funds  for  the  purchase. 

On  June  30,  1905,  the  C.  H.  &  D.  proper  had  out- 
standing short-term  and  demand  obligations  in  the  form 
of  loans  and  bills  payable  aggregating  over  $2,300,000. 
In  addition  there  was  $1,009,000  due  on  audited  ac- 
counts which  were  unpaid  because  of  lack  of  funds,  not 
to  mention  sundry  bills  held  up  and  not  even  vouchered 
for  the  same  reason.  It  soon  became  apparent  that  the 
C.  H.  &  D.  would  be  wholly  unable  to  perform  its  ob- 
ligations under  its  lease  of  the  Pere  Marquette;  that 
neither  the  Chicago,  Cincinnati  &  Louisville  nor  the 
Terminal  Company  was  earning  operating  expenses, 
and  consequently  their  Interest  charges  and  more  would 
have  to  be  met;  that  $15,000,000  of  C.  H.  &  D.  notes 
would  mature  in  about  three  years,  and  that  heavy 
interest  charges  would  fall  due  in  January  with  no 
funds  to  pay  them.^ 

President  Underwood  first  began  to  suspect  that 
all  was  not  right  with  the  C.  H.  &  D.  when  he  made 
a  tour  of  inspection  over  that  road  in  November, 
1905.  In  the  course  of  this  trip  he  met  the  control- 
ler of  the  company,  who  said  ''that  he  was  not  pre- 
pared to  give  the  exact  figures  of  the  C.  H.  &  D. 
finances,  because  he  did  not '  have  them  on  the  books.' 
^  *'/»  Re  P^re  Marquette,"  etc.,  p.  170. 


374  E.  H.  HARRIMAN 

Asked  to  explain,  the  controller  said  it  was  under- 
stood that  there  were  contracts  and  commitments 
that  he  knew  nothing  of.  He  did,  however,  disclose 
some  obligations  not  shown  on  the  books,  and  it 
then  appeared  that  the  statement  Mr.  Underwood 
had  looked  at,  and  on  which  he  and  Mr.  Morgan 
traded,  was  inaccurate."  ^ 

Surprised,  if  not  startled,  by  these  discoveries, 
Mr.  Underwood  cut  short  his  trip,  left  the  train  at 
Lima,  and  hurried  back  to  New  York. 

It  may  naturally  enough  be  asked:  Where  was 
E.  H.  Harriman  when  Morgan  and  the  Erie  Com- 
pany bought  a  twelve-million-dollar  railroad  with 
less  inquiry  and  investigation  than  a  prudent  busi- 
ness man  would  make  before  purchasing  an  automo- 
bile? As  an  influential  member  of  the  executive 
committee,  could  he  not  have  prevented  the  Erie 
from  making  an  investment  that  he  must  have 
known  would  be  unfortunate,  if  not  actually  disas- 
trous? 

Mr.  Harriman  sailed  for  Japan  on  the  i6th  of 
August,  1905,  and  did  not  return  to  New  York  until 
October  26th.  Presumably,  therefore,  he  knew  noth- 
ing about  the  transaction  at  the  time,  and  certainly 
he  was  not  consulted  with  regard  to  it.  When,  some 

*  Open  Letter  to  the  Stockholders  of  the  Baltimore  &  Ohio  Railroad 
Company,  by  Isaac  M.  Gate  (Baltimore,  1917),  pp.  6-7. 


■'■■-^-- '-' 


HARRIMAN  AND  THE  ERIE  375 

months  later,  he  became  aware  of  the  facts,  he 
strongly  disapproved  the  purchase,  and  urged  Presi- 
dent Underwood  to  see  Morgan  and  try  to  have  it 
rescinded.  In  testifying  before  the  Interstate  Com- 
merce Commission  some  years  later  Mr.  Underwood 
said: 

Several  days  before  the  rescindation  process  was  had, 
I  talked  with  Mr.  Harriman  in  his  office  in  the  Equit- 
able Building.  Now  I  cannot  give  you  any  idea  where 
he  had  been  in  the  interim,  but  I  very  distinctly  remem- 
ber my  conversation  with  him.  I  could  not  forget  it,  nor 
could  you  forget  it  if  you  had  heard  it  —  about  what 
was  necessary  to  be  done.  He  said:  **You  made  the 
trade  with  Mr.  Morgan  yourself.  No  one  was  present. 
You  had  better  go  and  see  Mr.  Morgan,  and  you  had 
better  not  depend  on  any  one  else  but  yourself.  It  is  up 
to  you.  You  had  better  go  and  better  go  now."  Then  I 
went  down  and  had  an  audience  with  Mr.  Morgan  and 
told  him  that  practically  the  C.  H.  &  D.  had  a  floating 
debt  that  was  not  visible  in  the  statement  he  showed 
me.  He  said:  "Well,  we  will  look  at  the  statement,'* 
and  there  was  some  attempt  made  to  find  it,  but  it  was 
unsuccessful;  it  was  not  produced.  I  said:  '*Mr.  Mor- 
gan, the  statement  that  I  made  to  you  of  the  effect  of 
the  acquisition  of  the  C.  H.  &  D.  on  the  Erie's  finances 
is  null  and  void,  because  the  statement  [the  Morgan 
statement]  was  inaccurate."  He  looked  at  me  and  said: 
"Well,  if  the  statement  that  we  made  to  you  was  inac- 
curate, and  for  any  reason  you  think  that  the  Erie  Rail- 
road has  made  a  bad  trade,  your  duty  is  very  simple  — 
you  have  only  to  convene  your  board  of  directors  and 
rescind  it,  and  I  advise  you  to  do  it  at  once."  I  bade 
him  good  afternoon  and  walked  out  of  his  office.^ 

*  "In  Re  P^re  Marquette,"  etc.,  pp.  172-73. 


376  E.  H.  HARRIMAN 

After  buying  a  twelve-million-dollar  railroad  from 
Morgan,  unconditionally,  in  August,  it  must  have 
required  a  good  deal  of  courage  to  go  to  him  in  No- 
vember and  ask  him  to  take  the  road  back  at  the 
same  price  that  the  Erie  had  paid  for  it.  So  far  as 
Mr.  Harriman  inspired  that  courage,  he  is  entitled 
to  the  credit  of  saving  the  Erie  Company  from  a 
serious,  if  not  a  disastrous  loss.  But  perhaps  Mr. 
Underwood  would  have  made  the  appeal  in  any 
event. 

On  the  28th  of  November,  Mr.  Morgan  himself 
appeared  before  the  Erie  executive  committee,  and 
offered  to  take  back  the  C.  H.  &  D.  stock  at  the 
price  paid  for  it,  "because,"  as  he  said,  "he  under- 
stood that  some  dissatisfaction  was  felt,  and  had 
been  expressed,  with  reference  to  the  purchase  ef- 
fected by  his  firm  as  agents  for  the  Erie."  The  com- 
mittee, by  a  unanimous  vote,  decided  to  recommend 
to  the  board  the  acceptance  of  the  offer,  and  the 
board  did  so  accept  on  the  following  day.  At  the 
same  time  the  board  authorized  the  delivery  to  Mr. 
Morgan  of  a  copy,  "suitably  engraved,  under  the 
Erie's  corporate  seal,  and  signed  by  every  director," 
of  the  resolution  of  thanks  adopted  at  the  meeting, 
"for  his  extraordinary  service  and  assistance  to  the 
company;  first  in  his  quick  and  efficient  compliance 
with  the  direct  personal  appeal  of  the  company, 


HARRIMAN  AND  THE  ERIE  377 

through  its  president,  to  obtain  for  it  a  large  ma- 
jority of  the  common  stock  of  the  Cincinnati,  Hamil- 
ton &  Dayton  Railway  Company;  and,  finally,  after 
the  development  of  doubt  in  this  board  as  to  the 
continuing  ability  of  the  Erie  Company  satisfac- 
torily to  maintain  and  extend  that  system,  in  view  of 
the  demands  of  its  own  railroad,  in  his  magnificent, 
unparalleled,  and  absolutely  voluntary  offer  himself 
to  assume  the  entire  purchase,  and  to  relieve  the 
Erie  Company  from  all  contracts  and  cost  in  connec- 
tion therewith." 

The  freeing  of  the  Erie  from  its  purchase  was  form- 
ally accomplished  through  an  agreement  with  J.  P. 
Morgan  dated  December  2,  1905,  whereby  the  Erie 
agreed  to  sell  to  him  its  C.  H.  &  D.  stock  at  the  price 
paid  under  the  purchase  contract.  While  Morgan  as- 
sumed this  obligation  personally,  the  firm  paid  for  the 
stock  and  treated  it  as  a  firm  matter,  without  formal  as- 
signment from  him.^ 

Two  days  after  the  signing  of  this  agreement,  both 
the  C.  H.  &  D.  and  the  Pere  Marquette  went  into 
the  hands  of  a  receiver.  While  the  whole  transaction 
above  outlined  is  more  or  less  extraordinary,  perhaps 
the  strangest  feature  of  it  is  the  apparent  ease  with 
which  H.  B.  HoUins  &  Co.  palmed  off  upon  Morgan 
and  the  Erie  Company  the  watered  stock  of  a  bank- 
rupt railroad  at  $160  a  share. 

*  *'In  Re  Pere  Marquette,"  etc.,  p.  171. 


CHAPTER  XV 
THE  CONTEST  WITH  THE  SANTA  F£ 

IN  the  early  years  of  the  twentieth  century,  mana- 
gers of  all  the  trunk-lines  west  of  the  Missouri 
River  were  striving  to  lessen  operating  expenses  and 
quicken  the  movement  of  trains  by  cutting  down 
heavy  grades,  eliminating  sharp  curves,  and  other- 
wise improving  their  tracks.  When  these  transcon- 
tinental roads  were  originally  built,  comparatively 
little  attention  was  paid  to  operating  efficiency. 
The  important  considerations  at  that  time  were 
economy  and  rapidity  of  construction;  and  in  select- 
ing locations,  engineers  and  managers  chose  routes 
over  which  it  would  be  cheapest  and  easiest  to  build, 
rather  than  routes  over  which  trains  could  be  most 
economically  and  rapidly  hauled.  Experience  proved, 
however,  that  this  was  a  mistake,  and  that  it  would 
be  better  to  relocate  and  rebuild  parts  of  the  roads 
where  there  were  sharp  curves,  or  steep  grades,  than 
to  waste  money  unnecessarily  in  heavy  operating 
expenses.  Mr.  Harriman  was  one  of  the  first  to  see 
this,  and  between  1899  and  1904  he  spent  scores  of 
millions  of  dollars  in  improving  both  the  Union  Pa- 
cific and  the  Central  Pacific  by  relocating  and  re- 


CONTEST  WITH  THE  SANTA  FE        379 

building  their  tracks.  He  turned  his  attention  first  to 
the  mountainous  region  between  Ogden  and  Reno, 
partly  because  that  section  was  most  important  and 
partly  because  grades  there  were  heaviest  and  curves 
most  frequent.  He  always  intended,  however,  to 
carry  out  a  plan  long  contemplated  by  Mr.  Hunting- 
ton, which  was  to  improve  the  main  line  of  the  South- 
ern Pacific  by  changing  its  location  between  Lords- 
burg,  New  Mexico,  and  Yuma,  Arizona,  where  the 
road  crossed  the  Rocky  Mountains  and  where  maxi- 
mum grades  ran  from  one  and  one  half  to  nearly  two 
per  cent. 

A  glance  at  a  contour  map  of  the  United  States 
will  show  that  from  Canada  to  Mexico  there  is  no 
watercourse  that  cuts  entirely  through  the  Rocky 
Mountains  and  their  outlying  foothills  except  the 
Gila  River  in  southern  Arizona.  Ever>^where  else 
the  range  is  practically  unbroken,  and  in  order  to 
surmount  it  the  builders  of  the  first  transcontinental 
lines  had  to  carry  the  work  of  construction  up  more 
or  less  steep  grades,  where,  in  many  places,  there  was 
a  rise  of  one  hundred  feet  or  more  to  the  mile.  The 
advantages  of  the  Gila  Valley  route  had  been  known 
for  many  years,  and  the  engineers  who  made  sur- 
veys for  the  Southern  Pacific  were  well  aware  that 
by  adopting  it  they  could  get  across  the  mountains 
with  a  maximum  grade  of  only  twenty-six  feet  per 


38o  E.  H.  HARRIMAN 

mile.  They  were  deterred,  however,  from  taking 
this  course  by  a  very  formidable  obstacle.  Just  west 
of  the  San  Carlos  Indian  Reservation,  the  Gila  River 
runs  into  what  is  known  in  Arizona  as  a  ^'  box  canon  '* 
—  a  very  narrow  defile  between  high  rocky  cliffs. 
This  canon  is  about  eighteen  miles  in  length,  and  its 
walls  rise  perpendicularly,  almost  from  the  water's 
edge,  to  heights  of  from  eight  hundred  to  a  thousand 
feet.  The  engineering  work  involved  in  building 
through  such  a  gorge  would  be  very  expensive  and 
would  take  a  good  deal  of  time;  so  it  was  finally  de- 
cided that  a  better  plan  would  be  to  cross  the  moun- 
tains fifty  or  sixty  miles  farther  south,  where  the 
road  could  be  more  quickly  and  easily  built  and 
where  the  initial  cost  would  be  less.  Mr.  Huntington 
and  Mr.  Kruttschnitt,  however,  always  kept  the 
Gila  route  in  mind,  and  fully  intended  to  build  over 
it  as  soon  as  the  financial  condition  of  the  Southern 
Pacific  should  be  such  as  to  justify  the  necessary 
expenditure. 

Meanwhile,  the  Atchison,  Topeka  &  Santa  Fe,  the 
most  enterprising  and  powerful  rival  of  the  South- 
ern Pacific,  began  to  show  a  disposition  to  get  control 
of  the  Gila  Canon  by  building  toward  it  from  Phoe- 
nix. In  the  summer  of  1902,  the  Phoenix  &  Eastern 
Railroad  Company,  a  corporation  backed  by  Santa 
Fe  interests,  obtained  an  Arizona  charter,  filed  the 


CONTEST  WITH  THE  SANTA  FE        381 

necessary  location  maps,  and  began  the  construction 
of  a  line  from  Phoenix  to  Benson,  by  way  of  the  Gila 
and  San  Pedro  Valleys.  The  ostensible  object  of  this 
enterprise  was  to  secure  a  connection  with  the  El 
Paso  &  Southwestern  and  thus  get  an  entrance  into 
Texas.  To  this  move  the  Southern  Pacific  offered  no 
objection,  although  the  projected  road  invaded  its 
territory  and  for  a  distance  of  one  hundred  and 
eighty-five  miles  nearly  paralleled  its  main  line.  In 
December,  1903,  however,  the  Phoenix  &  Eastern 
abandoned  the  location  along  the  south  bank  of  the 
Gila  River  on  which  it  had  originally  filed,  crossed  to 
the  north  bank,  where  it  had  no  right  of  way,  and 
began  making  location  surveys  eastward  in  the  gen- 
eral direction  of  the  Gila  Canon.  This,  and  other 
moves  made  by  the  Santa  Fe  about  the  same  time, 
seemed  to  indicate  an  intention  on  the  part  of  its 
managers  to  preempt  the  only  practicable  approach 
to  the  canon,  and  perhaps  build  through  the  canon 
itself,  thus  preventing  the  Southern  Pacific  from 
constructing  its  proposed  line  from  Lordsburg  to 
Yuma  by  way  of  the  Gila  Valley. 

When  this  state  of  affairs  was  reported  to  Mr. 
Harriman,  he  took  steps  at  once  to  protect  Southern 
Pacific  interests.  By  his  direction,  and  under  the 
immediate  supervision  of  Epes  Randolph,  vice-presi- 
dent and  general  manager  of  Southern  Pacific  lines 


382  E.  H.  HARRIMAN 

in  Arizona  and  New  Mexico,  a  new  company  was 
incorporated  under  the  name  of  Arizona  Eastern, 
which  was  empowered  by  its  charter  to  build  a  road 
Irom  Yuma  to  Lordsburg  by  way  of  Phoenix,  Dud- 
leysville,  the  Gila  Canon,  and  the  San  Carlos  Reser- 
vation. This  new  company  began  at  once  to  make 
location  surveys  and  pushed  them  with  all  possible 
speed  to  completion.  Meanwhile,  the  Phoenix  & 
Eastern  was  also  making  location  surveys,  with  a 
view  to  preempting  a  strip  of  land  about  eighteen 
miles  long  on  the  northern  bank  of  the  river,  where, 
under  its  original  map  and  location,  it  had  no  right 
of  way.  As  this  strip  furnished  the  best  and  easiest 
means  of  access  to  the  Gila  Canon,  each  of  the  con- 
tending parties  strove  eagerly  to  get  possession  of  it 
by  prior  location.  The  Arizona  Eastern  completed 
its  surveys  early  in  March,  1904,  and  on  the  14th  of 
that  month  at  9  a.m.  filed  its  route  map  in  the  United 
States  Land  Office  at  Tucson,  as  required  by  the  Act 
of  Congress  of  March  3,  1875,  granting  rights  of  way 
to  railroad  companies  over  the  public  domain.  The 
Phoenix  &  Eastern  filed  its  own  route  map  on  the 
same  day,  but  not  until  9.20  a.m.,  so  that  the  Arizona 
Eastern  had  a  small  margin  of  twenty  minutes'  pri- 
ority. Both  companies  began  grading  operations  on 
the  disputed  strip,  and  as  the  rival  gangs  of  labor- 
ers were  working  almost  side  by  side,  they  natu- 


CONTEST  WITH  THE  SANTA  FE        383 

rally  interfered  and  clashed  frequently  with  one 
another. 

The  contest,  thus  far,  had  been  for  possession  only 
of  the  eighteen-mile  strip  on  the  northern  bank  of 
the  river  below  Dudleysville,  which  may  be  described 
as  the  western  approach  to  the  Gila  Canon,  but  a 
struggle  soon  began  for  possession  of  the  canon  itself. 
On  the  6th  of  April,  1904,  the  Santa  Fe  brought 
about  the  organization  and  incorporation  of  still 
another  company,  called  the  Gila  River  Railroad 
Company,  whose  charter  authorized  it  to  establish  a 
connection  with  the  Phoenix  &  Eastern  at  or  near 
Dudleysville,  and  to  build  thence  through  the  Gila 
Cafion  and  across  the  Arizona-New  Mexico  bound- 
ary to  the  terminus  of  the  Santa  Fe  branch  line  at 
Deming.  So  far  as  the  Gila  Canon  was  concerned, 
this  route  had  already  been  preempted  by  the  Ari- 
zona Eastern  in  the  map  that  it  filed  in  the  United 
States  Land  Office  on  the  14th  of  March,  1904;  but 
the  Gila  River  Company,  nevertheless,  made  ap- 
plication to  the  Interior  Department  in  Washington 
for  right  of  way. 

The  various  controversies  involving  preemption 
rights  on  the  northern  side  of  the  river  soon  became 
the  subject  of  litigation,  and  in  the  trial  court  the 
Arizona  Eastern's  right  of  way  through  the  Gila 
Canon  was  sustained.   The  case  was  then  appealed 


384  E.  H.  HARRIMAN 

to  the  United  States  Supreme  Court,  but  before  a 
final  decision  had  been  rendered,  the  managers  of 
the  Santa  Fe,  anticipating  defeat,  approached  Mr. 
Harriman  with  a  proposition  to  compromise.  The 
negotiations  that  followed  ended  in  an  agreement  on 
the  part  of  the  Southern  Pacific  to  purchase  the 
capital  stock  of  the  Phoenix  &  Eastern  at  cost.  This 
was  a  clear  victory  for  Mr.  Harriman,  because  it  not 
only  gave  him  undisputed  possession  of  the  Gila 
Canon  and  the  road  leading  thereto,  but  put  an  end 
to  the  encroachments  of  the  Santa  Fe  upon  Southern 
Pacific  territory  in  that  part  of  Arizona. 

Mr.  Harriman  was  always  desirous  of  maintaining 
peaceful  relations  with  the  Santa  Fe,  and  even  went 
so  far  as  to  offer  its  managers  seats  for  two  of  their 
representatives  in  the  Southern  Pacific  directorate, 
provided  they  would  reciprocate  by  giving  him  a 
similar  privilege  in  their  own  directorate.  "We 
should  work  in  harmony,*'  he  said  to  them,  "and  not 
live  in  strife.  You  give  me  two  seats  on  the  board  of 
the  Santa  Fe  and  I  will  give  you  two  seats  on  the 
board  of  the  Southern  Pacific."  But  this  offer  was 
not  accepted.  Perhaps  President  Ripley  and  his 
associates  were  afraid  of  the  influence  that  might  be 
exerted  in  their  organization  by  a  man  of  Mr.  Har- 
riman's  energetic  and  dominating  character.  But 
the  privilege  that  they  would  not  concede  volun- 


CONTEST  WITH  THE  SANTA  FE        385 

tarily  was  eventually  extorted  from  them.  In  the 
summer  of  1904,  while  the  contest  for  possession  of 
the  Gila  Canon  was  still  going  on,  Mr.  Harriman 
and  his  associates  bought  in  the  open  market  300,000 
shares  ($30,000,000  par  value)  of  Santa  Fe  stock. 
This  gave  them  power  to  elect  two  directors,  and 
H.  H.  Rogers  and  H.  C.  Frick  were  shortly  after- 
ward chosen  to  represent  Union  Pacific  and  South- 
ern Pacific  interests  on  the  Santa  Fe  board. 

Although  Mr.  Harriman  was  a  keen  rival  when 
competition  became  necessary,  he  was  always  of 
opinion  that  competitive  railroad-building  is  not 
permanently  advantageous,  either  to  the  public,  or 
to  the  companies  that  engage  in  it;  and  that  where 
competing  lines  are  already  in  existence,  it  is  best  for 
them  either  to  work  harmoniously  together  by  means 
of  cooperation,  or  to  combine  under  a  single  manage- 
ment. This  was  the  central  thought  in  the  address 
that  he  delivered  at  the  opening  of  the  Louisiana 
Purchase  Exposition  in  St.  Louis  on  the  30th  of 
April,  1904.  *'The  combination  of  different  rail- 
ways,'* he  then  said,  "should  be  regulated  by  law. 
So  far  as  may  be  necessary,  the  public  interest  should 
be  protected  by  law;  but  in  so  far  as  the  law  obstructs 
such  combinations,  without  public  benefit,  it  is  un- 
wise and  prejudicial  to  the  public  interest." 

This  was  not  then  the  view  of  Congress,  or  of  the 


386  E.  H.  HARRIMAN 

Ajnerican  people.  Combination  was  prohibited  by 
the  Sherman  Anti-Trust  Law,  even  when  it  was 
clearly  beneficial  to  the  public.  Time  and  experi- 
ence, however,  showed  the  soundness  of  Mr.  Harri- 
man*s  judgment.  During  and  after  the  World  War, 
the  advantages  of  railroad  combination  were  almost 
universally  recognized,  and  Congress  itself  adopted 
the  very  policy  for  which  Mr.  Harriman  had  been 
condemned.^ 

^  The  bill  introduced  in  1919  by  Senator  Cummins,  chairman  of  the 
Senate  Committee  on  Interstate  Commerce,  authorized  railroads  to 
combine  voluntarily  in  geographical  groups,  and  provided  that  at  thtr 
end  of  seven  years  such  combination  should  be  compulsory. 


CHAPTER  XVI 
NORTHERN  SECURITIES  COMPANY  DISSOLVED 

WHEN  the  United  States  Supreme  Court,  on 
the  14th  of  March,  1904,  decided  that  the 
Northern  Securities  Company  was  "an  illegal  com- 
bination in  restraint  of  trade'*  and  ordered  that  it  be 
dissolved,  the  question  arose:  How  should  the  disso- 
lution be  brought  about?  Should  the  corporation 
terminate  its  existence  by  cancelling  its  stock  and 
giving  back  to  every  holder  the  same  kind  and  the 
same  number  of  shares  that  the  latter  had  put  into 
it?  Or  should  it  dissolve  by  distributing  its  total  as- 
sets, pro  rata,  among  its  stockholders,  without  regard 
to  the  kinds  of  stock  originally  received  from  them? 
Regarded  as  a  question  of  equity,  it  would  seem  to 
depend  upon  the  nature  of  the  agreement  between 
the  parties  at  the  time  when  the  combination  was 
formed.  If  a  Northern  Pacific  stockholder  put  in  his 
shares  with  the  understanding  that  they  were  to  re- 
main his  property  until  the  combination  should  be 
legally  and  effectually  established,  he  might  right- 
fully demand  the  return  of  those  very  same  shares 
when  the  combination  was  dissolved  by  judicial 
decree.  If,  on  the  other  hand,  he  sold  his  shares 
to  the  combination   unconditionally,  and   without 


388  E.  H.  HARRIMAN 

regard  to  the  latter's  effectual  and  permanent  estab- 
lishment, he  could  equitably  claim  only  his  pro  rata 
share  of  the  combination's  assets.  To  the  average 
small  stockholder  it  made  little  difference,  perhaps, 
whether  he  got  back  the  same  shares  that  he  had 
turned  in  or  not;  but  to  Mr.  Harriman  it  made  a  very 
great  difference.  If,  on  the  dissolution  of  the  com- 
bination, he  recovered  all  the  shares  of  the  Northern 
Pacific  Company  that  he  had  originally  contributed, 
he  would  still  retain  controlling  power  in  that  or- 
ganization, because  he  had  turned  in  more  than  a 
majority  of  its  capital  stock.  If,  however,  he  got 
back  only  a  part  of  his  Northern  Pacific  shares  and 
had  to  take  with  them  a  part  of  the  shares  of  the 
Great  Northern,  he  would  have  only  a  minority 
holding  in  each  corporation  and  comparatively  little 
power  in  either. 

Mr.  Hill  and  his  associates,  very  naturally,  pre- 
ferred to  make  a  pro  rata  distribution  of  the  holding 
company's  assets,  including  both  Northern  Pacific 
and  Great  Northern  shares,  so  on  the  22d  of  March, 
1904,  they  sent  out  a  circular  to  the  stockholders  of 
the  Northern  Securities  Company,  apprising  them 
of  the  impending  dissolution  and  proposing  to  return 
to  them,  not  the  same  kind  and  the  same  number  of 
shares  that  they  had  put  in,  but  $39.27  in  stock  of 
the  Northern  Pacific  and  $30.17  in  stock  of  the  Great 


NORTHERN  SECURITIES  COMPANY    389 

Northern  for  every  share  of  Northern  Securities 
stock  that  they  surrendered.  The  circular  also  gave 
notice  of  a  special  meeting  of  Northern  Securities 
stockholders,  to  be  held  on  the  21st  of  April,  1904, 
for  the  purpose  of  voting  on  the  proposition.* 

On  the  2d  of  April,  1904,  only  eleven  days  after 
the  Hill  plan  of  dissolution  was  announced,  counsel 
for  the  Oregon  Short  Line  (a  subsidiary  of  the  Union 
Pacific)  applied  to  the  courts  for  permission  to  inter- 
vene, on  the  ground  that  it  (the  Short  Line  Com- 
pany) was  still  the  owner  of  the  Northern  Pacific 
shares  that  had  been  turned  in,  and  that  the  pro- 
posed distribution  of  the  holding  company^s  assets 
would  be  unjust  and  inequitable.  Permission  to 
intervene  was  denied,  whereupon  Harriman  brought 
suit  in  the  United  States  Circuit  Court  for  an  in- 
junction to  prevent  the  Northern  Securities  Com- 

*  Mr.  Hill  afterward  stated,  in  a  letter  to  a  friend,  that  this  plan, 
when  first  proposed,  had  Mr.  Harriman 's  approval  {Life  of  James  J. 
Hill,  by  J.  G.  Pyle,  vol.  ii ,  pp.  178-79) ;  but  such  does  not  seem  to  have 
been  the  case.  The  first  plan  was  presented  at  a  conference  held  in  Mr. 
Hill's  office  soon  after  the  United  States  Supreme  Court  rendered  its 
decision.  The  gentlemen  who  attended  that  conference  were  Mr.  Hill, 
Messrs.  Grover,  Stetson,  and  Johnson,  his  legal  counsel,  and  R.  S. 
Lovett,  general  counsel  for  the  Harriman  lines.  The  plan,  ae  pre- 
sented, was  discussed  and  developed,  mainly  by  Stetson  and  Johnson, 
and  the  conferees  separated  with  the  understanding  that  they  should 
meet  again  on  the  following  morning.  When  Mr.  Lovett  reported  to 
Mr.  Harriman  what  the  plan  was,  the  latter  dissented  at  once.  Mr. 
Lovett  thereupon  telephoned  Mr.  Grover,  counsel  for  Mr.  Hill,  that 
Mr.  Harriman  was  "not  prepared  to  commit  himself  to  the  plan  sug- 
gested," and  that  he  (Lovett)  would  not  return  to  the  conference. 


390  E.  H.  HARRIMAN 

pany  from  distributing  its  assets  in  the  manner  pro- 
posed. The  court  issued  a  temporary  restraining 
order,  and  on  April  21,  1904,  just  before  the  special 
meeting  of  the  Northern  Securities  stockholders, 
Harriman  sent  to  them  the  following  ''Notice": 

Notice  is  hereby  given  to  the  special  meeting  of  stock- 
holders of  the  Northern  Securities  Company  that  the 
undersigned  claim  that  the  shares  of  the  capital  stock  of 
the  Northern  Pacific  Railway  Company  delivered  by 
Edward  H.  Harriman  and  Winslow  S.  Pierce  to  the 
Northern  Securities  Company,  on  or  about  November 
18,  1901,  and  consisting  of  $37,023,000,  par  value,  of  the 
common  stock  of  said  railway  company  and  $41,085,- 
000,  par  value,  of  the  preferred  stock  of  said  railroad 
company,  and  the  common  stock  into  which  said  pre- 
ferred stock  has  been  converted,  belong  to  the  Oregon 
Short  Line  Company,  as  the  legal  and  equitable  owner 
thereof;  that  the  Northern  Securities  Company  is  not 
now,  and  never  became,  the  owner  thereof,  but  is  simply 
a  custodian,  and  that  the  undersigned  are  entitled  to 
the  return  and  delivery  to  them  of  certificates  for  said 
stock  of  the  Northern  Pacific  Railway  Company,  upon 
the  surrender  by  them  of  $82,491,871,  par  value,  of  the 
capital  stock  of  the  Northern  Securities  Company  and 
the  payment  of  $8,915,629  in  cash  received  by  them  on 
such  delivery  of  Northern  Pacific  stock  to  the  Northern 
Securities  Company  as  aforesaid. 

Notice  is  further  given  that  the  said  Northern  Securi- 
ties Company  has  no  right  to  distribute  the  said  North- 
ern Pacific  stock,  pro  rata,  among  the  stockholders  of  the 
Northern  Securities  Company,  or  otherwise  dispose  of 
the  same  except  to  return  the  same  to  the  undersigned. 

Notice  is  further  given  that  the  undersigned  have  in- 


I 


NORTHERN  SECURITIES  COMPANY    391 

stituted  a  suit  in  the  Circuit  Court  of  the  United  States 
for  the  district  of  New  Jersey  to  have  it  adjudged  that 
they  are  entitled  to  the  return  of  the  said  Northern  Pa- 
cific stock  to  them,  and  that  in  said  suit  a  restraining  or- 
der has  been  granted  by  the  Hon.  Andrew  Kirkpatrick, 
U.S.  Judge,  restraining  and  enjoining  the  Northern  Se- 
curities Company,  until  the  hearing  and  decision  of  the 
application  of  the  undersigned  for  a  preliminary  writ  of 
injunction,  from  parting  with,  disposing  of,  assigning, 
transferring,  or  distributing  said  stock  of  the  Northern 
Pacific  Railway  Company  so  received  from  said  Harri- 
man  and  Pierce,  or  the  certificates  which  now  represent 
the  same,  and  that  a  copy  of  said  restraining  order  and  of 
the  bill  of  complaint,  exhibits  and  affidavits  on  said  mo- 
tion for  a  preliminary  injunction  have  been  duly  served 
on  the  officers  of  the  Northern  Securities  Company. 
Edward  H.  Harriman 
WiNSLOW  S.  Pierce 
Oregon  Short  Line  Railroad 
The  Equitable  Trust  Company 

In  arguing  this  case  before  the  Circuit  Court  judge, 
counsel  for  Mr.  Harriman  contended  that  the  Hill 
plan  of  dissolution,  if  carried  into  effect,  would  put 
the  control  of  the  two  roads  into  the  hands  of  the 
same  men  who  had  combined  to  organize  the  North- 
ern Securities  Company  and  who  were  still  endeavor- 
ing to  secure  such  control  in  another  way.  It  would 
be  unfair,  counsel  argued,  to  allow  the  Hill-Morgan 
interests  to  take  away  from  the  Harriman  interests 
the  majority  of  Northern  Pacific  stock  that  they  had 
held  prior  to  the  organization  of  the  Securities  Com- 


392  E.  H.  HARRIMAN 

pany,  and  to  give  them  in  exchange  only  a  minority 
of  Northern  Pacific  shares  and  a  still  smaller  minor- 
ity of  Great  Northern  shares.  The  latter  they  had 
never  bought  and  never  desired  to  buy,  and  the  Hill 
plan,  if  carried  through,  would  merely  force  them  to 
take  about  $25,000,000  of  Great  Northern  stock  in 
which  they  had  no  interest  whatever. 

Although  Mr.  Harriman  secured  an  injunction 
and  thus  blocked  temporarily  the  proposed  distribu- 
tion of  the  Securities  Company's  assets,  he  was  un- 
able to  hold  his  advantage.  On  the  i8th  of  August, 
1904,  Hill  and  his  associates  carried  the  case  by  ap- 
peal to  the  Circuit  Court  of  Appeals,  and  succeeded, 
on  the  3d  of  January,  1905,  in  getting  the  injunction 
dissolved.  Mr.  Harriman  thereupon  obtained  a  writ 
of  certiorari  and  took  the  case  to  the  United  States 
Supreme  Court,  where  it  was  argued  March  2,  1905. 
Four  days  later  the  Supreme  Court  handed  down  a 
decision  in  which  Harriman's  plea  for  the  return  of 
his  Northern  Pacific  shares  was  denied  and  the  Hill 
plan  for  the  distribution  of  the  holding  company's 
assets  was  approved  and  sanctioned.  The  Northern 
Securities  Company  then  called  in  for  cancellation 
ninety-nine  per  cent  of  its  shares  and  gave  to  the 
holders  thereof  $39.27  in  Northern  Pacific  stock  and 
$30.17  in  Great  Northern  stock  for  every  share  sur- 
rendered.   This  distribution  not  only  deprived  Mr. 


NORTHERN  SECURITIES  COMPANY     393 

Harriman  of  his  control  of  the  Northern  Pacific 
Company,  but  affected  his  interests  injuriously  in 
another  way.  If  he  recovered  all  of  the  Northern 
Pacific  shares  that  he  turned  in  when  the  Securities 
Company  was  formed,  he  would  have,  at  the  par 
value  of  such  shares,  $78,108,000,  with  an  annual 
income  (at  the  current  dividend  rate)  of  $5,467,560. 
If,  on  the  other  hand,  he  got  back  only  his  pro  rata 
share  of  the  Securities  Company's  assets  (including 
both  Northern  Pacific  and  Great  Northern  shares), 
he  would  have  only  $56,709,330,  at  par  value,  with 
an  annual  income  of  only  $3,969,667.' 

In  carrying  through  his  plan  for  such  a  distribu- 
tion of  the  holding  company's  assets  as  would  de- 
prive Mr.  Harriman  of  power  in  Northern  Pacific 
and  Burlington  affairs,  Hill  won  a  decisive  victory; 
but  he  was  not  satisfied,  nevertheless,  with  the  out- 
come of  the  litigation  as  a  whole. 

The  dissolution  of  the  Northern  Securities  Company 
[says  his  biographer]  was  one  of  Mr.  Hill's  few  great  dis- 
appointments. It  cannot  properly  be  said  to  mark  a  fail- 
ure. The  plan,  as  it  was  outlined  in  his  mind,  away  back 
in  1893  to  1895,  was  a  limited  holding  company  for 
Great  Northern  stockholders  only.  Time  and  circum- 
stances, rather  than  individual  judgment  or  desire,  had 
compelled  its  expansion  to  the  form  taken  by  the  North- 

^  History  of  the  Northern  Securities  Case,  by  B.  H.  Meyer,  Univer- 
sity of  Wisconsin  Bulletin,  p.  295. 


394  E.  H.  HARRIMAN 

ern  Securities.  The  forces  which  struck  at  this,  both 
State  and  Federal,  were  inspired,  in  part  at  least,  by  a 
political  motive.  The  decision  pictures  the  court  in 
doubt.  The  vote  of  five  to  four  was  almost  equivalent  to 
"not  proven."  The  after  event  amounted  to  a  vindica- 
tion. For,  just  as  the  reorganization  of  the  Northern 
Pacific,  planned  in  1895  and  prohibited  by  the  court, 
was  accomplished  in  another  fashion,  to  the  same  end 
but  in  conformity  with  the  law,  so  the  main  business 
and  economic  purposes  of  the  Northern  Securities  have 
since  been  realized.  The  only  thing  actually  accom- 
plished by  the  court's  decision  was  to  prevent  eight  or 
ten  old  men  from  placing  their  investments  where  they 
would  be  secure  after  their  death.^ 

If  the  dissolution  of  the  Northern  Securities  Com- 
pany was  a  disappointment  to  Mr.  Hill,  the  failure 
to  secure  complete  control  of  the  Northern  Pacific 
in  1 90 1  and  the  adverse  decision  of  the  United  States 
Supreme  Court  in  1905  were  equally  disappointing 
to  Mr.  Harriman,  because  they  defeated  his  plans 
and  left  the  Union  Pacific  with  only  a  minority  hold- 
ing of  stock  in  each  of  the  Hill-Morgan  companies. 
Great  disappointments,  however,  are  sometimes  at- 
tended by  compensating  advantages,  and  it  hap- 
pened to  be  so  in  this  case.  The  Great  Northern 
stock,  which  Mr.  Harriman  did  not  want,  but  which 
he  was  forced  to  take  when  the  Securities  Company 
dissolved,  proved  to  be  a  veritable  bonanza.  In  the 
fail  of  1905,  the  Great  Northern  Company  added 

»  Life  oj  James  J.  Hill,  by  J.  G.  Pyle,  vol.  11,  pp.  183-84. 


NORTHERN  SECURITIES  COMPANY    395 

$25,000,000  to  its  capital  stock  and  gave  to  its  stock- 
holders the  privilege  of  subscribing  to  the  new  issue 
at  par.  As  the  stock  at  that  time  was  selling  at  a 
premium,  Mr.  Harriman,  of  course,  took  the  amount 
allotted  to  the  Union  Pacific,  and  thus  increased  his 
holdings  by  37,444  shares.  Then,  in  the  latter  part 
of  1905  and  the  early  part  of  1906,  there  happened  to 
be  an  extraordinary  boom  in  the  stock  market  which 
carried  railroad  securities,  and  especially  the  Hill 
stocks,  to  almost  unprecedented  figures.  Northern 
Pacific  sold  up  to  $232.50  a  share,  while  Great  North- 
ern, notwithstanding  the  recent  expansion  of  its  cap- 
ital, was  bid  up  to  a  maximum  of  $348  a  share.  Dur- 
ing this  period  of  speculative  excitement,  and  upon 
this  steadily  rising  market,  Mr.  Harriman  disposed 
of  nearly  all  his  Northern  Pacific  and  Great  North- 
ern shares  at  prices  that  gave  the  Union  Pacific  a  net 
profit  of  about  $58,000,000.^  It  is  doubtful  whether 
a  greater  sum  was  ever  made  out  of  a  single  stock 
investment,  and  certainly  no  investor  ever  secured 
$58,000,000  as  pecuniary  compensation  for  a  series 
of  failures  and  defeats.    Mr.  Thomas  Woodlock,  a 

^  Professor  Ripley  estimated  the  profit  of  the  Union  Pacific  at  about 
$83,000,000  {Railroads:  Finance  and  Organization,  p.  506);  but  his 
figuring,  apparently,  was  based  on  the  assumption  that  the  stocks 
were  sold  at  the  highest  prices  that  they  reached.  Such,  however,  was 
not  the  case.  Mr.  Harriman  sold  the  Northern  Pacific  stock  at  an 
average  price  of  $208.75  a  share  (maximum  quotation,  $232.50)  and 
the  Great  Northern  stock  at  an  average  of  $304.51  per  share  (maxi- 
mum quotation,  $348). 


396  E.  H.  HARRIMAN 

railroad  expert  of  that  time,  when  asked  by  Carl 
Snyder  what  he  regarded  as  Mr.  Harriman's  greatest 
achievement,  said:  "  I  think  it  was  this;  to  get  licked 
in  a  fight  and  to  pull  out  of  it  with  a  colossal  fortune 
as  the  result."  ^  The  "colossal  fortune,"  however, 
was  the  result  of  good  luck,  rather  than  of  clear  pre- 
vision and  deliberate  intention.  Mr.  Harriman  took 
advantage  of  the  stock-market  boom  and  sold  the 
holdings  of  the  Union  Pacific  at  an  immense  profit; 
but  the  causes  that  brought  about  the  enhancement 
of  value  were  largely  fortuitous. 

Mr.  Harriman  has  sometimes  been  accused  of  *'  cor- 
porate speculation,"  and  of  managing  the  finances 
of  his  railroads  "with  an  eye  to  the  Wall  Street 
situation";  ^  but  for  this  charge  (at  least  in  the 
sense  of  stock  gambling  with  corporate  funds)  there 
never  was  any  justification.  He  usually  spent  fifty 
per  cent  more  for  the  maintenance  and  improve- 
ment of  his  properties  than  was  spent  by  other  rail- 
way managers  in  the  same  territory,  and  when  he 
invested  corporate  funds  in  the  securities  of  other 
railroad  companies,  it  was^not  "with  an  eye  to  the 
Wall  Street  situation,"  but  rather  with  a  view  to 
strengthening  the  position  and  increasing  the  busi- 

^  "Harriman:  Colossus  of  Roads,"  by  Carl  Snyder,  Review  of  Re- 
views, January,  1907,  p.  48. 

^  Railroads:  Finance  and  Organization,  by  Professor  William  Z. 
Ripley,  pp.511,  514,  515. 


NORTHERN  SECURITIES  COMPANY    397 

ness  of  the  Union  Pacific  and  Southern  Pacific  sys- 
tems. 

His  investment  in  the  stock  of  the  Northern 
Pacific,  which  is  a  case  in  point,  was  a  strategic  move 
rather  than  a  speculative  venture.  His  object  was  to 
get  a  share  in  the  advantages  of  the  BuHington  pur- 
chase, which  Hill  had  refused  to  give  him.  Circum- 
stances and  the  course  of  events,  however,  defeated 
his  original  plan  and  turned  what  was  meant  to  be 
a  strategic  move  into  an  enormously  profitable  trans- 
action. He  failed  to  get  control  either  of  the  North- 
ern Pacific  or  of  the  Burlington,  but,  by  way  of  com- 
pensation, he  was  able  to  put  into  the  treasury  of  the 
Union  Pacific  $58,000,000  in  cash  by  selling  Great 
Northern  stock  which  he  had  been  forced  to  take  and 
Northern  Pacific  stock  which  he  had  bought  without 
any  reference  whatever  to  "the  Wall  Street  situa- 
tion." He  did  show,  however,  an  accurate  judgment 
of  values  when  he  quickly  got  rid  of  these  stocks  by 
selling  them  at  prices  which  he  believed  to  be  far 
above  their  intrinsic  worth. 

At  the  end  of  the  fiscal  year  1905-06,1  the  ex- 
tremely prosperous  condition  of  the  Union  Pacific 

*  Professor  Ripley,  commenting  upon  the  company's  financial 
status  at  that  time,  says,  "its  revenues  from  operation  were  enor- 
mous," "its  repayments  from  advances  to  subsidiar>'  companies  were 
steadily  increasing" :  and  "its  treasury'  was  literally  bursting  with  free 
assets."  {Railroads:  Finance  and  Organization,  p.  507.) 


398  E.  H.  HARRIMAN 

Company  and  the  receipt  of  $58,000,000  in  cash 
from  the  sale  of  Northern  Pacific  and  Great  Northern 
stocks  enabled  Mr.  Harriman  to  extend  the  influence 
of  his  roads,  facilitate  traflic,  and  stabilize  rates,  by 
investing  largely  in  the  securities  of  other  railway 
systems  with  which  his  own  lines  indirectly  connected 
or  competed.  Up  to  that  time  he  had  never  bought 
stocks  of  other  railroad  corporations  with  a  view  to 
the  establishment  of  closer  and  more  sympathetic 
business  relations;  but  in  1906  he  began  to  make 
purchases  for  the  express  purpose  of  creating  what 
was  then  known  as  a  ''community  of  interest."  Be- 
tween June  30,  1906,  and  March  i,  1907,  he  invested 
for  the  Union  Pacific  more  than  $130,000,000  in  the 
securities  of  nine  diff"erent  railway  companies,  whose 
lines  covered  almost  the  whole  country  from  ocean  to 
ocean  and  from  the  Great  Lakes  to  the  Gulf.  The 
several  amounts  of  stocks  thus  bought  were  as  fol- 
lows: 

Atchison,  Topeka  &  Santa  F6,  preferred $10,395,000 

Baltimore  &  Ohio,  preferred 6,665,920 

Baltimore  &  Ohio,  common 38,801,040 

Chicago,  Milwaukee  &  St.  Paul  * 5,997,750 

Chicago  &  Northwestern 5,303.673 

Fresno  City  Railway 106,410 

Illinois  Central 41,442,028 

New  York  Central 19,634,324 

St.  Joseph  &  Grand  Island  2,022,540 

$130,368,685  » 

*  Reports  of  Interstate  Commerce  Commission,  vol.  12,  p.  20, 


I 


NORTHERN  SECURITIES  COMPANY    399 

These  amounts  of  stock  were  not  sufficient,  in  any 
case,  to  secure  absolute  majority  control;  but,  as 
Professor  Ripley  has  rightly  said,  "there  can  be  no 
doubt  that  such  substantial  fractions  could  exercise 
a  powerful  influence  upon  the  traffic  policy  of  the 
properties  concerned.'*  With  regard  to  the  wisdom 
of  this  policy,  or  its  expediency  in  view  of  the  state  of 
public  opinion  at  that  time,  there  have  been  differ- 
ences of  opinion.  Mr.  Otto  H.  Kahn,  who  was  a  close 
and  sympathetic  associate  of  Mr.  Harriman,  in  com- 
menting afterward  upon  these  large  stock  purchases, 
said: 

Whatever  be  the  cause  or  explanation,  he  [Mr.  Harri- 
man] took  action  that  year  which,  it  has  always  seemed 
to  me,  was  the  one  serious  mistake  in  his  management  of 
Union  Pacific  affairs.  I  refer  to  the  purchases  of  very 
large  amounts  of  stocks  of  many  other  companies, 
which  were  made  for  the  account  and  placed  in  the 
treasury  of  the  Union  Pacific.  For  some  of  these  acqui- 
sitions it  must  be  said,  there  were  valid,  legitimate,  and, 
in  fact,  almost  compelling  reasons,  even  at  the  then  pre- 
vailing high  prices ;  but  for  others  it  was  and  is  difficult 
to  discern  sufficient  warrant,  especially  considering  the 
time  and  the  cost  at  which  they  were  made  and  the  ef- 
fect which  they  were  likely  to  have  and  actually  did 
have  upon  public  opinion.  It  is  but  fair  to  add  that  the 
problem  of  how  to  deal  with  the  huge  cash  fund  realized 
by  the  Union  Pacific  through  the  sale  of  its  Northern 
Pacific  stock  holdings  was  an  exceedingly  difficult  and 
complex  one ;  that  the  operation  of  selling  Northern  Pa- 
cific stock  and  reinvesting  the  proceeds  in  the  stock  of 


400  E.  H.  HARRIMAN 

other  lihes  did  largely  increase  the  annual  income  tc 
the  Union  Pacific;  and  that  Mr.  Harriman  .  .  .  never 
changed  his  belief  that  the  entire  transaction,  looked 
upon  primarily  as  a  change  of  investments,  was  advan- 
tageous to  the  company,  in  that  it  greatly  augmented  its 
income,  and  would  ultimately  be  found  to  carry  with  it, 
as  to  all  the  stocks  concerned,  important  and  legitimate 
benefits.^ 

Mr.  Kahn's  disapproval  of  Mr.  Harriman's  policy 
seems  to  have  been  based  mainly  on  the  unfavorable 
effect  that  it  had  on  public  opinion.  "  It  lent  color," 
he  said,  "to  the  impression  that  Mr.  Harriman  was 
aiming  at  a  gigantic  illegal  monopoly  of  the  railroad 
industry."  It  may  well  be  doubted,  however,  whether 
fear  of  hostile  public  opinion  ought  to  deter  an  ex- 
perienced and  far-sighted  railway  manager  from 
adopting  a  policy  that  he  believes  will  be  beneficial 
to  all  concerned.  Public  opinion  is  seldom  well  in- 
formed, and  popular  judgments,  in  many  cases,  are 
largely  influenced  by  prejudice,  politics,  or  dema- 
gogic misrepresentation.  Every  business  man  natu- 
rally prefers  to  have  popular  approval  of  his  acts, 
rather  than  general  condemnation  of  them ;  but  Mr. 
Harriman  never  allowed  fear  of  public  censure  to 
influence  his  policies  or  his  decisions.  This  was 
shown  in  many  cases.  His  purchase  of  a  controlling 
interest  in  the  Southern  Pacific  "lent  color  to  the 

*  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  1911), 
p.  39. 


NORTHERN  SECURITIES  COMPANY    401 

impression  that  he  was  aiming  at  a  gigantic  illegal 
monopoly"  of  transcontinental  traffic;  but  subse- 
quent events  proved  that  the  popular  "impression" 
was  an  erroneous  one,  and  that  the  reconstruction  of 
the  Southern  Pacific  w^th  the  capital  and  credit  of 
the  Union  Pacific  was  as  beneficial  to  the  people  of 
the  Great  West  as  it  was  to  the  stockholders  of  the 
two  companies.  It  is  difficult  to  see  why  this  was  not 
equally  true  of  Mr.  Harriman's  stock  purchases  in 
1906  and  1907.  They  affected  public  opinion  un- 
favorably, for  the  reason  that  Mr.  Kahn  has  stated ; 
but  it  does  not  appear  that  they  were  actually  in- 
jurious to  anybody. 

Professor  William  Z.  Ripley,  who  seldom  took  a 
favorable  view  of  Mr.  Harriman's  financial  methods 
and  policies,^  seems  to  have  seen  clearly,  in  this  case, 
that  the  investments  in  question  were  highly  advan- 
tageous to  the  Union  Pacific  and  Southern  Pacific 
systems.  After  giving  a  list  of  the  securities  bought, 
he  says: 

By  this  good  stroke  of  business  the  Union  Pacific's  In- 
come from  investments  was  enhanced  by  more  than 
fifty  per  cent.  Such  income  had  in  fact  risen  from  less 
than  $3,000,000  in  1900  to  $6,497,000  in  1905.  Now  it 
jumped  to  $10,333,000  —  a  sum  greater  than  all  the 
Union  Pacific  dividend  disbursement  in  the  preceding 

^  At  least  after  1907,  when  he  seems  to  have  been  unduly  influ- 
enced by  the  Interstate  Commerce  Commission. 


402  E.  H.  HARRIMAN 

year.  .  .  .  The  aggregate  cost  of  these  securities,  pur- 
chased within  a  few  months,  was,  as  we  have  seen,  over 
$130,000,000.  As  a  reinvestment  of  surplus  funds  the 
list  speaks  for  itself.  The  next  question  is  as  to  their 
strategic  importance  for  purposes  of  transportation. 
Absolute  majority  control  of  none  of  these  properties 
was  secured.  Less  than  one  third  of  Illinois  Central; 
one  fifth  of  Baltimore  &  Ohio;  only  about  eight  per  cent 
of  New  York  Central,  with  perhaps  as  much  more  in 
friendly  individual  hands;  and  even  smaller  percent- 
ages of  the  granger  roads  —  was  all  that  was  held.  But 
there  can  be  no  doubt  that  such  substantial  fractions 
could  exercise  a  powerful  influence  upon  the  traffic 
policy  of  the  properties  concerned.  And  considered  in 
their  entirety,  they  made  up  a  network  of  lines  reaching 
every  part  of  the  United  States.  Most  directly  valuable, 
probably,  was  the  Illinois  Central,  as  giving  both  the 
Southern  Pacific  at  New  Orleans  and  the  Union  Pacific 
at  the  Missouri  River  direct  access  to  Chicago.  And 
with  the  acquisition  of  the  Central  of  Georgia  in  1907,^ 
a  through  line  from  the  South  Atlantic  ports  to  the 
West  was  afforded.  The  important  coal  and  iron  and 
cotton  manufacturing  districts  of  the  South  were  given 
their  first  through  routing  to  important  inland  and  Ori- 
ental markets  over  a  single  system.  And  of  course,  con- 
trariwise, the  Illinois  Central  gave  opportunity  for  par- 
ticipation in  the  large  grain  export  business  through  the 
Gulf  ports,  as  well  as  ready  access  to  the  new  trade 
routes  to  be  opened  up  by  the  Panama  Canal.  Inciden- 
tally, it  may  be  noted  that  the  distance  to  Chicago  from 
the  Atlantic  seaboard  was,   by  comparison  with  the 

^  This  road  was  bought  by  Oakley  Thorne  and  Marsden  J.  Perry 
from  the  Richmond  Terminal  Reorganization  Committee  in  June, 
1907.  It  was  shortly  afterward  sold  by  them  to  E.  H.  Harriman  whc 
turned  it  over  to  the  Illinois  Central.  {The  Earning  Power  of  Rail- 
roads, by  Floyd  W.  Mundy,  New  York,  1913,  pp.  329  and  365.) 


NORTHERN  SECURITIES  COMPANY    403 

northern  trunk-lines,  shortened  by  about  one  sixth  by 
this  new  southeastern  trade  route. 

The  Union  Pacific  now  also  enjoyed  part  control  of 
two  great  Atlantic  trunk-lines.  The  New  York  Central, 
with  its  trans-Mississippi  extension,  the  Chicago  & 
Northwestern,  had  long  made  up,  with  the  Union  Pa- 
cific, the  shortest  and  probably  the  best  ocean-to-ocean 
line.  And  the  Baltimore  &  Ohio  shares,  being  one  half 
of  the  Pennsylvania's  former  holdings,  gave  access  to 
the  remaining  North  Atlantic  seaports,  as  well  as 
amounting,  in  connection  with  powerful  joint  directors 
in  the  Union  Pacific  and  Pennsylvania  boards,  to  a  sort 
of  partnership  with  this  most  powerful  company.  As 
for  the  St.  Paul  road,  was  that  not  an  important  rival  in 
a  rich  western  territory?  And  even  more  important, 
was  it  not,  at  that  very  time,  announcing  a  Pacific 
Coast  extension  which  should  give  entry  to  the  North 
Pacific  ports,  served  by  the  rival  Morgan-Hill  proper- 
ties? ^ 

From  the  above  statement  of  the  advantages  se- 
cured by  Mr.  Harriman's  stock  purchases,  it  seems 
to  appear,  not  only  that  they  were  highly  profitable 
to  the  two  Pacific  systems,  but  that  they  conferred  a 
benefit  also  upon  the  general  public  by  opening  more 

^  Railroads:  Finance  and  Organization,  by  William  Z.  Ripley,  pp. 
508-10. 

Authorities  on  railway  economics  generally  agree  that  when  pur- 
chases of  stocks  are  made  —  as  Harriman  made  them  —  for  the  pur- 
pose of  "opening  communications,  or  modifying  competition,  they 
have  a  sound  foundation."  (See  Railroad  Reorganization  by  Stuart 
Daggett,  Cambridge.  iMass.,  1908,  p.  260.)  With  regard  to  purchase 
made  to  establish  a  "community  of  interest"  see  also  American 
Railway  Transportation,  by  Emory  R.  Johnson,  Professor  of  Trans- 
portation and  Commerce  in  the  University  of  Pennsylvania  (New 
York,  191 1),  pp.  253-55. 


404  E.  H.  HARRIMAN 

direct  through  routes,  by  stabilizing  rates,  and  by 
greatly  improving  traffic  facilities.  Incidentally,  of 
course,  they  increased  Mr.  Harriman's  power;  but  if 
he  did  not  use  that  power  to  promote  corporate  inter- 
ests at  the  expense  of  the  public  welfare,  his  policy  in 
making  such  investments  can  hardly  be  regarded  as 
unwise,  or  mistaken. 

In  the  light  of  all  that  we  now  know  of  transporta- 
tion affairs  in  the  first  two  decades  of  the  present 
century,  Mr.  Harriman's  activities  between  1899 
and  1909  were,  to  say  the  least,  far  more  beneficial  to 
shippers,  producers,  and  consumers  than  were  inter- 
state regulation  and  Government  control  between 
1909  and  1920.  He  left  every  railroad  that  he  man- 
aged better  than  he  found  it;  he  stimulated  produc- 
tion throughout  the  Great  West  by  furnishing  ade- 
quate transportation  to  markets,  and  he  moved 
many  million  tons  of  freight  that  never  would  have 
been  moved  if  he  had  not  lived. 


CHAPTER  XVII 
EQUITABLE  LIFE  INVESTIGATION 

ALMOST  every  man,  at  some  time  in  the  course 
of  his  Hfe,  becomes  involved  in  a  contest,  or 
controversy,  which  he  did  not  originate  and  for 
which  he  is  not  in  any  way  responsible.  Such  was 
the  case  when  Mr.  Harriman,  in  1905,  was  drawn 
into  a  fight  for  control  of  the  Equitable  Life  Assur- 
ance Society.  He  did  not  begin  this  fight,  nor  was  he 
at  all  interested  in  the  outcome  of  it;  but  circum- 
stances happened  to  make  him  a  participant,  and, 
as  Mr.  Kahn  has  said,  he  soon  "became  the  prin- 
cipal and  probably  the  most  attacked  figure  of  the 
conflict,  both  the  warring  factions  pausing  in  their 
fight  with  each  other  to  pour  their  fire  of  abuse  and 
innuendo  upon  him."  ^ 

The  history  of  the  Equitable,  so  far  as  it  seems 
necessary  to  give  it  here,  may  be  briefly  summarized 
as  follows: 

About  the  year  1859,  Henry  B.  Hyde,  a  well-to-do 
employee  of  the  Mutual  Life  Insurance  Company  of 
New  York,  conceived  the  idea  of  organizing  an  in- 

1  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  191 1), 
p.  19. 


406  E.  H.  HARRIMAN 

surance  company  of  his  own  —  or  at  least  one  that 
he  himself  could  control.  As  he  did  not  have  money 
enough  for  such  an  undertaking,  he  applied  for  as- 
sistance to  his  friend  and  pastor,  Rev.  Dr.  J.  W. 
Alexander,  of  the  Nineteenth  Street  Presbyterian 
Church.  Through  the  latter's  influence,  he  succeeded 
in  raising  nearly  fifty  thousand  dollars,  in  addition  to 
what  he  already  had  of  his  own,  and  with  a  capital  of 
$100,000  he  organized  and  incorporated  the  "Equi- 
table Life  Assurance  Society  of  the  United  States," 
a  joint-stock  company,  a  majority  of  whose  shares  he 
held.  In  recognition  of  the  aid  given  him  by  Dr. 
Alexander,  he  made  the  latter's  brother,  William  C. 
Alexander,  president  of  the  society;  but  he  himself, 
as  vice-president,  was  the  real  manager,,  partly  be- 
cause he  had  had  experience  in  the  business  and 
partly  because  he  owned  more  than  half  of  the  cap- 
ital stock.  When,  some  years  later,  William  C.  Alex- 
ander died,  Hyde  took  the  presidency,  and  caused 
the  election  of  J.  W.  Alexander,  a  son  of  Dr.  Alex- 
ander, as  vice-president. 

The  society  was  prosperous  and  successful  almost 
from  the  first,  and  under  Hyde's  skillful  manage- 
ment its  business  steadily  and  rapidly  increased, 
year  by  year,  until,  toward  the  close  of  the  century, 
its  available  assets  amounted  to  more  than  $400,- 
000,000.  When  Henry  B.  Hyde  died,  in  1899,  he  left 


EQUITABLE  LIFE  INVESTIGATION      407 

most  of  his  property,  including  his  Equitable  stock, 
to  his  son,  James  Hazen  Hyde;  but  as  the  latter  was 
then  only  twenty-three  years  of  age,  the  will  con- 
tained a  stipulation  that  he  should  not  become  presi- 
dent of  the  company  until  he  reached  the  age  of 
thirty.  J.  W.  Alexander  was,  therefore,  elected  presi- 
dent and  acted  as  a  sort  of  regent  until  young  Hyde 
should  become  old  enough  to  take  his  place.  Mean- 
while, the  latter  filled  the  position  of  vice-president. 

Under  the  terms  of  its  charter,  the  Equitable  had 
a  board  of  fifty-two  directors,  who  were  supposed  to 
control  its  policies  and  manage  its  affairs;  but,  as  is 
often  the  case  in  large  corporations,  they  discharged 
their  duties  in  a  merely  perfunctory  way  and  left  the 
real  management  of  the  company  to  its  president 
and  vice-president. 

Control  of  any  great  insurance  company  carries 
with  it  control  of  a  vast  amount  of  money ;  and  there 
are  many  ways  in  which  such  a  corporation  can  be 
'^milked"  —  to  use  a  colloquial  expression  —  with- 
out actual  criminality  or  flagrant  dishonesty.  Its 
officers,  for  example,  may  establish  a  trust  company, 
get  possession  of  a  large  amount  of  its  capital  stock, 
and  then  favor  it  by  depositing  with  it  one,  five,  or 
even  ten  million  dollars  of  the  insurance  company's 
money  at  a  very  low  rate  of  interest.  If  the  trust 
company  pays  only  two  per  cent  for  the  use  of  such 


408  E.  H.  HARRIMAN 

deposits,  and  then  loans  them  out  at  five  per  cent,  it 
obviously  makes  a  large  profit,  and  in  this  the  of- 
ficers of  the  insurance  company  share  as  stockhold- 
ers of  the  trust  company.  Then,  too,  the  president 
or  vice-president  of  an  insurance  company  can  buy 
stocks  or  bonds  as  an  individual  (although  perhaps 
with  the  money  of  the  policy-holders)  and  then  resell 
them  to  the  insurance  company  at  an  advanced 
price.  Finally,  by  carrying  in  their  own  names  stock 
in  other  corporations  that  belongs  to  the  insurance 
company,  officers  of  the  latter  can  get  themselves 
elected  as  vice-presidents  of  such  other  corporations 
and  draw  large  salaries  from  them  in  addition  to 
those  that  they  receive  from  their  own  company. 
All  these  and  various  other  methods  of  "milking"  an 
insurance  company  were  practiced  by  one  or  another 
of  the  Equitable's  high  officers,  but  they  did  not  be- 
come known  to  the  public,  or  even  to  a  majority  of 
the  directors,  until  a  quarrel  between  the  president 
and  vice-president  brought  them  to  light. 

Under  the  terms  of  his  father's  will,  James  Hazen 
Hyde,  owner  of  a  majority' of  the  Equitable  Com- 
pany's stock,  would  become  eligible  to  the  presi- 
dency when  he  reached  the  age  of  thirty  —  that  is, 
in  June,  1906.  Early  in  February,  1905,  just  before 
the  annual  meeting  of  directors.  President  Alexander 
and  thirty-five  other  officers,  who  composed  what 


EQUITABLE  LIFE  INVESTIGATION      409 

may  be  called  the  Alexander  faction,  sent  to  the 
directors  severally  a  so-called  "petition,"  in  which 
they  set  forth  their  views  with  regard  to  the  existing 
state  of  the  company's  affairs,  and  recommended 
that  the  society  be  changed  from  a  joint-stock  to  a 
mutual  corporation.  Such  a  change  was  permissible 
under  its  charter,  and  the  petitioners  expressed  the 
belief  that  it  would  be  better  for  all  concerned  if  the 
controlling  power  were  vested  in  the  policy-holders, 
rather  than  in  the  stockholders.  James  Hazen  Hyde, 
who  regarded  this  as  a  covert  attempt  to  keep  him 
out  of  the  presidency  when  he  should  reach  the  age 
of  thirty,  gathered  together  the  supporters  who  com- 
posed his  own  faction  and  offered  strenuous  opposi- 
tion to  the  proposed  change.  This  led  to  a  bitter 
personal  controversy  which  lasted  for  weeks  and 
filled  the  newspapers  with  charges,  counter-charges, 
and  accusations.  Hyde  declared  that  Alexander  was 
actuated  by  selfish  motives  and  desired  only  to  re- 
tain power,  while  Alexander  rejoined  that  Hyde  was 
''an  unsafe  official"  who  had  been  guilty  of  various 
irregularities  and  improprieties  which  affected  in- 
juriously the  company's  reputation  and  standing. 

It  was  at  this  stage  of  the  proceedings  that  Mr. 
Harriman  became  involved  in  the  controversy.  He 
had  had  relations  w^ith  the  Equitable  as  early  as  the 
spring  of  1 901,  when,  in  the  ordinary  course  of  busi- 


4i6  E.  H.  HARRIMAN 

nes5,  he  borrowed  from  the  society  $2,700,000,  put- 
ting up,  as  collateral  security,  stocks  and  bonds 
which  had  a  market  value  of  about  $3,200,000.  This 
loan  was  renewed  several  times,  at  intervals  of  six 
months  or  a  year,  but  was  finally  liquidated,  in  1904, 
when  the  society  demanded  a  higher  rate  of  interest 
than  Mr.  Harriman  was  willing  to  pay. 

In  November,  1902,  for  reasons  given  in  a  previous 
chapter,  Mr.  Harriman,  with  the  assistance  of  Kuhn, 
Loeb  &  Co.,  organized  a  syndicate  for  the  purpose 
of  buying  500,000  shares  of  Union  Pacific  preferred 
stock.  Regarding  this  purchase  as  likely  to  be  a 
profitable  one,  he  offered  Mr.  Hyde  a  small  share  in 
it.  Hyde  was  more  than  willing  to  associate  himself 
with  such  men  as  Stillman,  Schiff,  Rockefeller,  Rog- 
ers, and  Vanderbilt,  and  he  therefore  became  a  mem- 
ber of  the  syndicate  and  took  20,000  shares  of  the 
stock. 

With  the  exception  of  these  two  transactions  —  the 
$2,700,000  loan  and  the  syndicate  proposal  —  Mr. 
Harriman  never  had  any  business  relations  with  the 
Equitable  or  any  of  its  officers;  but  he  became  in- 
volved in  the  company's  affairs  in  another  way.  In 
the  spring  of  1901,  about  the  time  when  the  Equi- 
table loaned  him  $2,700,000,  Mr.  Hyde  proposed  to 
him  that  he  become  one  of  the  society's  directors. 
''I  told  him/'  Mr.  Harriman  afterward  said,  "that 


EQUITABLE  LIFE  INVESTIGATION      41 1 

I  had  very  little  time  to  give  to  such  things,  and  that 
I  did  not  think  the  method  of  management  of  the 
Equitable  was  the  right  one.*'  Hyde  replied  that 
"he  intended,  as  time  went  on,  to  change  it,  and 
that  his  desire  was  to  surround  himself  with  inde- 
pendent men,  who  would  have  no  other  interest 
than  that  of  the  Equitable,  to  help  him  in  his  man- 
agement"; because,  as  he  said,  ''Mr.  Alexander  was 
growing  old,  and  his  (Hyde's)  succession  (to  the 
presidency)  was  probably  not  far  oflf.  I  told  him 
that  if  that  was  so  and  that  was  his  intention,  I 
would  become  a  director."  * 

Mr.  Harriman  then  went  on  the  Equitable  board 
and  served  as  a  director  from  1901  to  1905;  but  his 
connection  with  the  management  was  purely  nom- 
inal, as  was  that  of  Prick,  Bliss,  Schiff,  Depew,  and 
many  other  members  of  the  board.  He  attended 
meetings  and  listened  to  reports;  but  he  was  never 
appointed  on  any  committee,  and  in  all  the  four 
years  of  his  term  his  advice  was  solicited  only  once. 
On  that  occasion  Vice-President  Hyde  consulted 
him  with  regard  to  a  vacancy  to  be  filled  in  the  board 
of  directors,  and  Mr.  Harriman  recommended  James 
J.  Hill,  president  of  the  Great  Northern  Railway 
Company,  as  a  suitable  man  for  the  place. 

'  Testimony  of  E.  H  Harriman  before  the  Armstrong  leei'slative 
committee  appointed  in  1905  to  investigate  the  business  of  life  insur- 
ance companies. 


412  E.  H.  HARRIMAN 

When  the  fight  for  supremacy  began  between  the 
Hyde  and  Alexander  factions,  Mr.  Harriman  sug- 
gested that  a  committee  of  the  board  be  appointed 
to  investigate  the  charges  and  counter-charges  made 
by  the  contending  parties.  Several  of  the  directors, 
including  Chauncey  M.  Depew,  thought  that  such 
action  would  be  premature,  and  at  their  request 
Harriman  refrained  from  putting  his  suggestion  into 
the  form  of  a  motion.  Some  time  later,  however,  the 
committee  was  appointed,  and  he  himself  was  made 
a  member  of  it.  The  other  members  were  H.  C. 
Frick  (chairman).  Bray  ton  Ives,  Cornelius  N.  Bliss, 
and  M.  E.  Ingalls.  This  committee,  after  a  thorough 
and  impartial  investigation,  reported  that  the  or- 
ganization and  management  of  the  Equitable  were 
generally  bad,  and  that  neither  Hyde  nor  Alexander 
was  fit  for  the  place  that  he  occupied.  The  commit- 
tee therefore  recommended  that  the  company  be 
reorganized ;  that  the  president,  first  vice-president, 
and  second  vice-president  be  requested  to  resign, 
and  that  a  special  committee  of  seven  be  appointed 
to  nominate  candidates  for  election  in  their  places. 

In  view  of  the  possible  loss  of  their  positions  and 
power,  both  factions  then  combined,  temporarily, 
for  self-protection;  and  at  the  next  meeting  of  the 
directors  succeeded  in  having  the  report  rejected  by 
a  majority  vote.   Frick,  Bliss,  and  Harriman  there- 


EQUITABLE  LIFE  INVESTIGATION      413 

upon  resigned  as  directors  of  the  society.  Mr.  Har- 
riman,  however,  continued  to  take  an  interest  in  its 
affairs  and  spent  a  good  deal  of  time  in  trying  to 
reconcile  conflicting  views,  get  an  amended  charter, 
and  put  the  corporation  on  a  sound  basis. 

Although  Alexander  and  Hyde  had  been  able  to 
prevent  the  adoption  of  the  Frick  report,  they  were 
not  strong  enough  to  withstand  the  tide  of  public 
opinion  which  turned  against  them  when  that  report 
was  given  to  the  press.  Both  therefore  tendered  their 
resignations,  and  Hyde  sold  his  Equitable  stock  to 
Thomas  F.  Ryan,  a  noted  speculator  and  promoter 
of  that  time.  Mr.  Harriman  did  not  think  that  Ryan 
was  a  suitable  man  to  have  control  of  the  Equitable, 
with  its  $400,000,000  of  assets,  and  he  therefore  tried 
to  buy  from  him  a  part  of  the  Hyde  stock.  Ryan 
declined  to  sell,  but  proposed  to  put  the  stock  into 
the  hands  of  trustees.  Harriman  had  no  objection  to 
this,  provided  Ryan  would  sell  him  half  the  stock 
and  allow  him  to  name  two  of  the  five  trustees;  but 
Ryan  would  not  consent.  Harriman  thereupon  noti- 
fied him  that  he  should  use  his  influence  against 
him.^  In  July,  1905,  the  Equitable  Society  was  re- 

*  Testimony  of  E.  H.  Harriman  before  the  Armstrong  legislative 
investigating  committee  in  November,  1905.  Mr.  Harriman  was  put 
on  the  stand  a  second  time,  at  his  own  request,  in  order  that  he  might 
reply  to  certain  statements  made  by  Ryan  in  testifying  before  the 
same  committee. 


414  E.  H.  HARRIMAN 

organized,  with  Paul  Morton,  ex-Secretary  of  the 
Navy,  as  prcvsident;  but  it  was  not  mutualized,  and 
Ryan,  as  owner  of  a  majority  of  the  stock,  had  vir- 
tual control  of  it,  whether  he  exercised  such  control 
or  not. 

Mr.  Harriman*s  intervention  in  the  affairs  of  the 
Equitable  and  his  negotiations  with  Ryan  brought 
upon  him  a  storm  of  criticism  and  censure.  By  sign- 
ing the  Prick  report  he  had  incurred  the  hostility  of 
both  factions.  Hyde,  whom  he  had  advised  to  vote 
for  the  adoption  of  the  report,  denounced  him  as  a 
traitor;  the  Alexander  party,  whose  methods  he  had 
condemned,  also  attacked  him,  while  his  enemies 
outside  of  the  insurance  company  availed  them- 
selves of  the  opportunity  to  prejudice  public  opinion 
against  him  by  accusing  him  of ''  borrowing  huge  sums 
of  money  from  a  company  of  which  he  was  a  director; 
of  foisting  off  upon  it  millions  of  securities  of  rail- 
roads with  which  his  name  was  identified ;  of  treach- 
er>'  to  young  Hyde  while  pretending  friendship;  of 
attempting  to  manipulate  the  funds  of  the  policy- 
holders, and  of  a  conspiracy  to  oust  the  warring  fac- 
tions and  gain  control  of  the  society  himvSelf."  ^ 

To  these  unwarranted  and  often  malicious  at- 
tacks Mr.  Harriman  made  no  reply.   In  commenting 

*  "Had  Harriman  Lived,"  Metropolitan  Magazine,  May,  1910,  pp. 

147-48. 


EQUITABLE  LIFE  INVESTIGATION      415 
upon  them,  after  his  death,  Mr.  Otto  H.  Kahn  said: 

Amongst  the  many  campaigns  of  vituperation  of 
which  Mr.  Harriman  was  the  object  in  the  course  of  his 
career,  none  succeeded  so  well  in  poisoning  and  embit- 
tering the  public  mind  against  him.  Under  this  ava- 
lanche of  unfair,  baseless  accusations  he  went  the  even 
tenor  of  his  way,  declining  to  dignify  them  by  defending 
himself  in  public.  On  this  and  similar  occasions  I  urged 
him  to  speak  out  —  to  make  use  of  the  means  at  his 
command  for  hitting  back  at  his  detractors  and  those 
who  willingly  and  eagerly  gave  circulation  to  their  slan- 
ders. I  was  never  able  to  move  him.  "Let  them  kick," 
he  used  to  say.  "It's  all  in  the  day's  work.  After  a 
while  they  will  tire  of  it.  Nothing  tires  a  man  more  than 
to  kick  against  air.  Moreover,  it  disconcerts  him,  and 
not  finding  any  point  of  resistance  he  is  apt  to  kick  him- 
self off  his  feet.  Besides,  for  immediate  effect  they  have 
the  advantage,  because  they  will  tell  lies  about  me,  and 
I  won't  about  them.  As  for  the  effect  in  the  long  run, 
why,  the  people  always  find  out  what's  what,  in  the 
end,  and  I  can  wait.  Let  those  fellows  shout  and  kick 
against  air.   I  need  my  time  and  energy  to  do  things."  ^ 

Harriman's  attitude  toward  persons  who  attacked 
him  was  almost  exactly  that  of  President  Lincoln. 
William  Roscoe  Thayer  says,  in  his  "Life  of  John 
Hay": 

When  Fox,  Assistant  Secretary  of  the  Navy,  said  that 
retribution  had  overtaken  Hale  and  Winter  Davis, 
"two  fellows  who  have  been  especially  malignant  to 
us,"  Lincoln  replied:  "You  have  more  of  the  feeling  of 

*  Edward  Henry  Harriman,  by  Otto  H.  Kahn  (New  York,  191 1),  pp. 
19-20. 


4i6  E.  H.  HARRIMAN 

personal  resentment  than  I.  Perhaps  I  may  have  too 
little  of  it,  but  I  never  thought  it  paid.  A  man  has  not 
time  enough  to  spend  half  his  life  in  quarrels.  If  any 
man  ceases  to  attack  me,  I  never  remember  the  past 
against  him."  ^ 

It  may  well  be  doubted,  however,  whether  the 
policy  of  non-resistance,  in  Mr.  Harriman's  case, 
was  justified  by  its  results.  When  a  man's  char- 
acter and  motives  are  assailed  and  he  does  not  de- 
fend himself,  the  public  is  apt  to  assume  that  he  is 
unable  to  do  so,  and  that  the  charges  made  against 
him  are  probably  true.  But  Mr.  Harriman  almost 
invariably  remained  silent,  even  when  he  had  a  per- 
fect defense  in  an  absolutely  impregnable  case.  **I 
have  n't  time  to  bother  with  newspaper  attacks,"  he 
once  said  to  a  friend.  "It'll  all  come  right  in  the 
end."  ''But,"  his  friend  rejoined,  "if  you  continue 
to  ignore  the  newspapers,  they'll  eventually  get 
your  scalp." 

That  Mr.  Harriman's  reputation  often  suffered  as 
the  result  of  his  refusal  to  defend  himself  publicly, 
there  can  be  no  doubt.  In  several  notable  cases,  he 
drew  up  in  manuscript  a  reply  to  charges,  which,  if 
it  had  been  published,  would  have  been  absolutely 
convincing;  but  in  none  of  these  cases  was  the  reply 
given  to  the  press.  Just  before  he  sailed  for  Japan, 
in  the  summer  of  1905,  he  dictated  to  his  stenog- 

*  Life  of  John  Hay,  by  William  Roscoe  Thayer;  vol.  i,  pp.  215-16. 


EQUITABLE  LIFE  INVESTIGATION      417 

rapher  the  following  statement  of  his  relations  with 
the  Equitable  Society;  but  it  was  never  published. 

There  has  been  nothing  in  the  relations  of  myself,  or 
the  interests  I  represent,  to  the  Equitable  Life  As- 
surance Society  and  its  allied  companies  ^  that  will  not 
bear  the  closest  scrutiny.  We  have  never  requested  or 
received  a  favor  from  them.  The  financial  transactions 
between  our  interests  have  been  insignificant,  and  never 
on  terms  that  could  not  have  been  readily  obtained 
elsewhere.  On  the  other  hand,  we  have  given  the  Mer- 
cantile and  Equitable  Trust  Companies  many  valuable 
trusteeships,  and  all  the  transactions  between  us  have 
resulted  in  material  advantage  and  profit  to  the  Equi- 
table and  its  allied  companies. 

I,  personally,  had  one  loan  with  the  Equitable  Life 
which  could  have  been  obtained  without  difficulty  at 
any  other  like  responsible  institution  on  as  good  or  bet- 
ter terms.  It  was  paid  because  the  rate  of  interest  was 
higher  than  I  was  willing  to  pay,  and  without  my  even 
attempting  to  have  it  reduced. 

There  is  nothing  in  the  Union  Pacific  preferred  stock 
syndicate  that  can  be  criticized.  Mr.  Hyde  availed  him- 
self of  an  opportunity  to  join  myself  and  associates  in 
the  acquisition  of  Union  Pacific  preferred  stock  on  a  fa- 
vorable basis.  There  was  no  profit  or  advantage  to  any 
one  member  of  the  syndicate  over  another,  and  neither 
the  Equitable  nor  any  of  its  allied  companies,  or  any  one 
else,  was  ever  requested  to  aid  in  any  way  in  financing 
the  syndicate. 

Like  many  other  of  the  fifty-two  directors  I  attended 

*  The  Equitable  owned  64  per  cent  of  the  capital  stock  of  the  Mer- 
cantile Trust  Company,  44  per  cent  of  the  stock  of  the  Equitable 
Trust  Company,  and  35  per  cent  of  the  stock  of  the  Commercial  Trust 
Company  of  Philadelphia. 


4,1 8  E.  H.  HARRIMAN 

the  regular  meetings,  which  were  held  quarterly,  but  I 
was  not  a  member  of  any  committee,  nor  activ^i  in  the 
management. 

The  Equitable  controversy  was  started  by  an  at- 
tempt on  the  part  of  the  Alexander  faction  to  oust  the 
Hyde  faction,  and  it  was  during  that  contest  that  the 
main  body  of  directors  became  informed,  for  the  first 
time,  of  the  prevailing  methods  of  conducting  the  com- 
pany's business  by  both  of  these  factions.  This  led  to 
the  appointment  of  the  Frick  committee,  of  which  I  was 
a  member,  and  to  the  Frick  report,  which  I  signed  and 
which  fully  expressed  my  views.  I  believe  the  new  man- 
agement will  correct  the  extravagant  methods  of  con- 
ducting the  company's  business  pointed  out  in  that  re- 
port. In  my  opinion  these  methods  involved  a  vastly 
greater  loss  to  the  policy-holders  than  the  particular 
transactions  dwelt  upon  so  extensively  by  the  public 
press. 

There  has  been  too  much  mystery  surrounding  the 
Equitable  affairs.  I  have  always  been  ready  and  willing 
to  answer  any  questions  asked  by  any  one  entitled  to 
make  inquiry,  and  have  not  tried  in  any  way  to  avoid  it. 
I  will  return  [from  Japan]  in  ample  time  to  give  any  tes- 
timony that  may  be  desired. 

The  presumption  is  that  Mr.  Harriman  made  this 
statement,  not  for  immediate  publication,  but  for 
future  use  in  case  he  should  be  accused,  during  his 
absence,  of  leaving  the  country  to  avoid  investiga- 
tion. As  such  a  charge  was  never  made,  the  state- 
ment was  not  given  to  the  press,  although  it  would 
manifestly  have  been  better  to  publish  it  in  any 
event. 


EQUITABLE  LIFE  INVESTIGATION      419 

In  the  fall  of  1905,  the  New  York  legislature  ap- 
pointed a  special  committee  "to  investigate  the  af- 
fairs and  conduct  of  business  of  life  insurance  com- 
panies," and  Charles  E.  Hughes,  afterward  governor 
of  the  State,  was  employed  as  its  counsel.  This  com- 
mittee called  a  large  number  of  witnesses,  including 
Mr.  Harriman,  and  made  an  exhaustive  investiga- 
tion of  Equitable  affairs.  The  result  was  to  confirm 
and  sustain  the  facts  and  conclusions  set  forth  in  the 
Prick  report  of  the  previous  summer;  but  nothing 
was  elicited  that  threw  discredit  upon  Mr.  Harriman 
except  the  fact  that  he  had  acted  as  a  director  of  the 
Equitable  for  a  number  of  years  without  participat- 
ing in  its  management  or  knowing  anything  about 
it.  In  this,  however,  he  was  not  alone.  Half  the 
members  of  the  board  were  as  ignorant  of  its  affairs 
as  he  was.  Mr.  Schiff,  for  example,  when  he  was  ex- 
amined by  the  committee  with  regard  to  his  acts  and 
duties  as  director,  said : 

I  directed  as  much  as,  under  the  prevailing  usages  in 
corporations,  I  was  permitted  to  direct.  In  other  words, 
I  went  to  the  meetings  of  the  society  when  they  were 
called ;  I  listened  to  the  reports  as  submitted  by  the  ex- 
ecutive officers;  I  voted  upon  the  same,  and  gave  such 
advice  as  was  asked  of  me.  The  system  of  directorship 
in  great  corporations  of  the  city  of  New  York  is  such  that 
a  director  has  practically  no  power.  He  is  considered  in 
many  instances,  and  I  may  say  in  most  instances,  as  a 
negligible  quantity  by  the  executive  officers  of  the  soci- 


420  E.  H.  HARRIMAN 

ety.  He  is  asked  for  advice  when  it  suits  the  executive 
officers,  and  if,  under  the  prevailing  system,  an  execu- 
tive officer  wishes  to  do  wrong,  or  wishes  to  conceal  any- 
thing from  his  directors,  or  to  commit  irregularities, 
such  as  have  been  disclosed  here,  the  director  is  entirely 
powerless,  and  can  only  judge  of  such  things  as  are  sub- 
mitted to  him.^ 

Mr.  Harriman  never  regarded  his  connection  with 
the  Equitable  as  particularly  useful,  to  himself  or  to 
anybody  else.  When  he  went  into  the  society,  in 
1901,  at  the  request  of  James  H.  Hyde,  he  thought 
perhaps  that  he  might  be  of  service  to  a  young  and 
inexperienced  man;  but  Hyde  never  became  presi- 
dent, and  Harriman,  between  1901  and  1905,  was  so 
absorbed  in  the  gigantic  enterprises  in  which  he  was 
engaged  that  he  gave  little  attention  or  thought  to 
an  insurance  company  in  which  he  had  no  financial 
interest.  In  November,  1905,  shortly  after  he  gave 
his  testimony  as  a  witness  before  the  Armstrong 
legislative  committee,  he  wrote  to  his  friend  David 
Willcox,  vice-president  and  general  counsel  of  the 
Delaware  &  Hudson  Company,  the  following  letter: 

New  York,  November  24,  1910. 

Dear  David: 

Thank  you  very  much  for  your  kind  expressions  in 
letter  of  i6th.  My  wonder  is  when  I  think  over  the  Life 
Insurance  matters  how  I  allowed  myself  to  be  in  any 

^  Testimony  of  Jacob  H.  Schiff  before  the  Armstrong  legislative 
investigating  committee,  September  29,  1905. 


EQUITABLE  LIFE  INVESTIGATION      421 

way  mixed  up  in  them.  Nearly  twenty  years  ago  I  fore- 
told the  probability  of  just  what  is  happening.  When 
Hyde  came  to  me,  he  seemed  to  want  to  correct  the  ex- 
isting methods,  and  I  believe  he  was  sincere;  but  he  fell 
to  temptation. 

Yours  sincerely 

E.  H.  Harriman 

At  some  time  before  Mr.  Harriman  died,  probably 
two  or  three  years  before,  he  succeeded,  after  per- 
sistent and  long-continued  negotiation,  in  buying 
from  Thomas  F.  Ryan  one  half  the  latter's  holding 
of  Equitable  stock;  but  he  never  disposed  of  it,  nor 
made  any  use  of  it.  What  he  would  have  done  with 
it,  if  he  had  lived,  is  a  matter  of  conjecture;  but  so 
long  as  he  held  it,  Ryan  could  not  control  the  Eq- 
uitable Society,  or  exercise  any  preponderating  in- 
fluence in  its  affairs.  All  the  Ryan  and  Harriman 
holdings  of  Equitable  stock  eventually  went  into 
the  hands  of  J.  P.  Morgan. 


END  OF  VOLUME  I 


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